Oral Answers to Questions

WALES

The Secretary of State was asked—

Allied Steel and Wire Pension Scheme

Jennifer Willott: What discussions he has had with colleagues in the Department for Work and Pensions on the occupational pensions of former Allied Steel and Wire workers in Wales; and if he will make a statement.

Nick Ainger: My right hon. Friend the Secretary of State has had a number of discussions with colleagues in the Department for Work and Pensions. The Government announced in May a large expansion of the financial assistance scheme, which will directly assist the Allied Steel and Wire staff.

Jennifer Willott: In the Allied Steel and Wire case in the European Court of Justice, the Government have applied for temporal limitation so that only those involved directly in the case can benefit from a positive judgment. Can that be seen as an admission of guilt by the Government, and what is the Minister planning to say to his constituents who used to work for Motherwell Bridge and who have lost their pensions as a result?

Nick Ainger: As the hon. Lady says, the matter is before the European Court of Justice and the Government are reluctant to comment in any detail on the temporal limitation. However, it is interesting to note that no one raised any legal objections in the oral hearing in the court when the Government applied for the temporal limitation. I assure her, as a Cardiff Member, that, whatever the outcome of the ECJ decision staff at Allied Steel and Wire will not be affected, by the temporal limitation.

Cheryl Gillan: The Minister will know that we have suggested a comprehensive audit of unclaimed assets in the financial sector as a possible way of squaring the claim of ASW workers with the protection of the taxpayer. Will he undertake to press the Chancellor and the Secretary of State for Work and Pensions for such an audit?

Nick Ainger: For 18 years, the Conservative Government did absolutely nothing to address this issue. The financial assistance scheme has been expanded from £400 million in 2004 to £2.3 billion starting from this October. It will provide substantial assistance to Allied Steel and Wire staff and it has been widely welcomed, including by their trade union, Community. We accept that there are issues that have to be resolved in the European Court of Justice, but we are confident that the scheme that is now in place will go a long way towards providing protection for staff who have lost their pensions. On top of that, we have the Pension Protection Fund, which will provide long-term security for people who have invested their savings in occupational pensions.

Child Poverty

Ann Clwyd: What assessment he has made of the impact of child tax credits on reducing child poverty in Cynon Valley and Wales.

Peter Hain: Since 1997, an estimated 50,000 children have been lifted out of poverty in Wales, including in Cynon Valley, where more than 5,000 in-work families are benefiting from child tax credit.

Ann Clwyd: As my right hon. Friend will no doubt acknowledge, child poverty is still a problem in Wales. However, the Conservatives opposed tax credits and the minimum wage, and oppose almost anything that helps the poorest families. Those families would have been far worse off if the Conservatives had been in power.

Peter Hain: Not surprisingly, I completely agree with my right hon. Friend. We have seen 700,000 children lifted out of poverty right across the United Kingdom, but she is right: we still need to do more. We have increased child benefit by a record amount and we have improved entitlement to maternity and paternity leave for new parents—all measures opposed by the Conservative Opposition. We have also created extra places in nursery and child care. All those programmes would be put at risk by the Tories' plans for public spending cuts in Wales and the rest of the United Kingdom.

Ann Winterton: What assessment has the Secretary of State made of the cost of administering those tax credits? Would that money not be better spent on reducing poverty among children in Wales?

Peter Hain: Child tax credits, like the employment tax credits, have an administrative cost, but they target the resources on those most in need, including children in Wales and right across the United Kingdom—and, I dare say, also in the hon. Lady's constituency. The Conservatives' repeated attempts to sabotage the programme—they opposed it in the first place and they would like to scrap it—would leave thousands of children in Wales and hundreds of thousands of children across the United Kingdom destitute, as they were when the Tories were last in power.

Lembit �pik: I must say that for a Labour Member to raise the issue of tax credits is like the captain of the Titanic offering guided tours of the hole in his boat. Is the Secretary of State aware that in Powys alone last year one in three tax credits awarded were overpaid, leaving nearly 5,000 people to pay back 4.3 million to the Revenue? Those errors are seriously harming our most vulnerable families. When will the Government get to grips with this malfunctioning system?

Peter Hain: Witty jousting is no substitute for a serious policy. As the hon. Gentleman knows, a serious policy of tax credits has helped families and people by the thousand in his constituency of Montgomeryshire and by the tens of thousands throughout Wales. The Liberal Democrats, the Conservative Opposition and Plaid Cymru have put forward no coherent alternative to that anti-poverty programme, which, as a Labour Government, we are proud to have led.

Police Force Mergers

Mark Williams: If he will make a statement on the timetable for the merger of Welsh police forces.

Peter Hain: My right hon. Friend the Home Secretary announced in the House on 19 June that he did not intend to lay any orders for enforced police force mergers before the summer recess.

Mark Williams: I thank the Secretary of State for that answer. Yesterday, the Welsh Affairs Committee heard repeatedly from the Minister for Policing, Security and Community Safety that the Government remained firmly attached to an all-Wales police force, yet we have also heard about an extended period of consultation. Will that consultation include a full examination of what the Minister described as innovative alternatives, including the federated model that the right hon. Member for Torfaen (Mr. Murphy) has been advancing, or is this another example of game, set and match before the match has even started?

Peter Hain: I am not sure that my right hon. Friend the Member for Torfaen has made that point, but I will certainly check. It is significant that no chief constableespecially Barbara Wilding, the chief constable of South Wales police force, which is the largest in Waleshas supported the idea of a federation. She makes the compelling point that that would not work. Her Majesty's inspectorate of constabulary advanced the original case for a single police force in Wales to bring together capabilities for tackling the huge new threats of serious and organised crime, drug dealing and terrorist activity. The problem with the Liberal Democrats and other critics of the policy is that they do not have a serious alternative for dealing with those new threats, and until they produce one, no one will take their criticism seriously.

Hywel Williams: I am still slightly unclear about the Government's position. If the police authorities and, perhaps, the chief constables were to come up with a viable alternative, would it be accepted as something for consideration and discussion, or will we just have a merger because there is absolutely no other choice? If there were a viable alternative, would the Government's mind still be open?

Peter Hain: Obviously, we want to ensure that we proceed with as much consent as possible so that we can tackle the new threats. As I said, no one has yet provided an alternative that would deal with those threats or deliver the capabilities to measure up to them. Of course we are not going into this with a closed mind. The Minister for Policing, Security and Community Safety made it clear to the Welsh Affairs Committee the other day that he thought that some of the handling of the matter over recent months could have been better, so he is now ensuring that that happens. None of the four chief constables to whom I have spokenI am seeing the North Wales chief constable next weekhas come up with an alternative. If someone does, of course we will not have a closed mind to it, but I do not see an alternative at the moment.

NHS Operations

Peter Bone: When he last met the Secretary of State for Health to discuss the number of Welsh patients waiting more than six months for an NHS operation in an English hospital.

Nick Ainger: I regularly meet Health Ministers and the Assembly Health Minister. The Assembly Government are investing record amounts in the NHS in Wales and delivering real improvements in the standard of services to all Welsh patients.

Peter Bone: I thank the Minister for his answer. On 30 November last year, the Prime Minister stated that no one would wait more than six months for an NHS operation. The latest figures show that 120 English patients have been waiting for more than six months at an English hospital, yet 786 Welsh patients have been waiting at an English hospital for more than six months. Clearly, the Government's claim is completely false, but there also appears to be discrimination against Welsh patients.

Nick Ainger: The latest figures show that 768 Welsh patients have been waiting more than six months for treatment in an English hospital, and that represents a significant reduction of 14 per cent. on the previous year. The number of out-patients waiting for treatment in English hospitals has fallen by 43 per cent. Waiting times are plummeting throughout Wales. We are meeting targets on reducing waiting times, and that is a result of the massive investment that is now going into the health service in Wales. We will be spending 5 billion this year, which represents a rise of over 80 per cent. since 1999. That is 1,600 a person. We now have 450 more consultants and 7,300 more nurses, and our budget for new hospital buildings will go up to 309 million in the next financial year. That is a record of which we are proud. Waiting times are coming down significantly, and it is a record of real achievement.

Ian Lucas: Many of my constituents are treated in English hospitals. Will my hon. Friend give me an absolute assurance that he will support my right to ask questions on their behalf about their treatment? Will he assure me that in no circumstances he will take that right away, which is what Conservative Members have suggested?

Nick Ainger: As my hon. Friend is well aware, the Conservatives intend to treat Welsh and Scottish MPs as second-class citizens in the House. I can assure him that he will still be able to put questions to the Department of Health and the Wales Office, which would not be the case under the Opposition, who are proposing to create a second tier of second-class MPs. That is outrageous.

David Jones: The target waiting time for English patients at the Robert Jones and Agnes Hunt hospital at Gobowen is six months. For Welsh patients it is 12 months, so will the Minister please explain why my constituents, who pay their taxes and national insurance contributions at exactly the same rate as English patients, should be expected to wait in pain for six months longer?

Nick Ainger: As I stated to the hon. Member for Wellingborough (Mr. Bone), significant and massive investment is aimed specifically at reducing waiting times. Where we have an arrangement with an English hospital, discussions are ongoing about waiting times, the costs of operations and so forth, but I can assure the hon. Member for Clwyd, West (Mr. Jones) and his constituents that much of this year's 5 billion going into the NHS is targeted on reducing waiting times. Waiting times are plummeting in Wales, as they are in England. Indeed, it is a record of achievement.

Post Offices

Elfyn Llwyd: What discussions he has had with colleagues in the Department of Trade and Industry on the number of post offices in Wales.

Peter Hain: Numerous ones.

Elfyn Llwyd: I am grateful to the Secretary of State for that enlightening answer. From 1998 to December 2005, 331 post officesone in every fourclosed in Wales. A further avalanche is expected with the loss of the TV licence contract and the phasing out of card accounts. Yet the main campaigning tool in Blaenau Gwent was a Labour petition to re-open the post offices. Was that not a rather cynical exercise that saw through by the people of Blaenau Gwent?

Peter Hain: Talking of Blaenau Gwent, I do not think that anyone takes the hon. Gentleman seriously any more.

Betty Williams: Does my right hon. Friend share my concern that in some instances post offices close because the postholder is retiring and the property is no longer available? Will he discuss with his colleagues in the Department of Trade and Industry whether, when it is difficult to find a building to carry on a post office service, it would be possible to provide a mobile service so that our constituents do not suffer?

Peter Hain: My hon. Friend makes a fair point and a compelling argument that mobile post offices could be slotted in to fill gaps in the circumstances that she describes. That could provide a viable alternative in many rural areas across Wales. I will certainly take up her request and do as she asks.

Roger Williams: In Brecon and Radnorshire, 6,800 people hold post office accounts and the demise of the facility will lead to financial inconvenience and reduce the viability of post offices. On top of that, Rev. Marian Morgan from New Radnor reports to me that a recently re-housed homeless person is unable to save up for a TV licence because the savings scheme has been abolished, and he will have to travel 10 miles to the nearest town to get his TV licence. In those circumstances, what assessment has the Secretary of State made of the continuing viability of rural post offices?

Peter Hain: This is a real issue, as it was under the previous Conservative Government, when 3,500 post offices closed, mostly in rural areas. It has been a continuing problem for all Governments as a result of different consumer patterns and so on. However, we need to do as much as we can to deal with the sort of examples that the hon. Gentleman describes in his constituency, which is largely rural. That is why we have made unprecedented investment since 1997 of more than 2 billion to help maintain the post office network. That includes 150 million this year. We look to provide what extra support we can.

Madeleine Moon: Post Office card accounts and credit unions have successfully helped people in Wales to stay out of debt. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) and I held a recent workshop on financial exclusion, which was targeted at people in the Ogmore and Bridgend constituencies. One of the suggestions that people attending the workshop made was that we should build greater links between credit unions and post offices, whereby additional income could come in to post offices and credit unions could provide access to low-cost loans. Will the Secretary of State examine the potential in Wales to build on that partnership?

Peter Hain: I would be happy to do that. I am a member of my local credit union in Neath Port Talbot. Credit unions do an important job, and there is scope for those who use post offices for banking services to bring extra income and customers into post offices, especially as credit unions offer low interest rates to many people on low incomes. As my hon. Friend suggests, it is a win-win situation for credit unions and local post offices.

Agriculture

James Duddridge: What recent meetings he has had to discuss agriculture in Wales.

Nick Ainger: My right hon. Friend and I have regular meetings with both ministerial colleagues and colleagues in the Welsh Assembly Government on a range of topics, including agriculture.

James Duddridge: The Under-Secretary will know that roadkill badgers are currently being tested for TB. What discussions has he held with the Department for Environment, Food and Rural Affairs about the results of those tests and will he make a statement to the House about them?

Nick Ainger: DEFRA and the Assembly Government are working closely together on bovine TB. As the hon. Gentleman knows, the Welsh Assembly Government are testing roadkill badgers, and the results of that study will be available in September or October. Once it is made available, a decision will be made about the next step to take in Wales on bovine TB.

Earnings Statistics

Stephen Crabb: What the average earnings were in Wales in the last period for which figures are available.

Nick Ainger: Latest figures for Wales show average weekly earnings of 454.40 in 2005, which is 87.9 per cent of the average for the UK as a whole.

Stephen Crabb: I thank the Under-Secretary for that reply. Average wages in Preseli Pembrokeshire increased only modestly in the past five years and remain well below the UK and Welsh averages. In contrast, house prices have soared by more than 170 per cent. in that period. What is he doing specifically to tackle the growing crisis of housing affordability, which affects families and young people throughout Wales? What steps are his Labour colleagues in the Assembly taking to deal with that problem? Why do they not deliver the social housing that is required in Wales?

Nick Ainger: In fact, in the past year, the hon. Gentleman's constituency and mine have experienced the fastest rise in average earnings in Wales. In the past four years, average earnings in Wales have risen faster than in England. We are closing the gap, especially in the objective 1 area, where there have been increases of 21 per cent. in average earnings in the past four years.
	The problem of the affordability of housing is not unique to west Walesit applies throughout Wales and the rest of the country. The Government are investing significant sums in tackling that problem. We are ensuring that social housing funds are available, working with housing associations to develop new schemes and considering innovative schemes such as community land trusts. I expect Pembrokeshire housing association and Pembrokeshire county council to examine those radical and innovative ways of providing affordable social housing in his and my communities.

Cheryl Gillan: Given the importance of Airbus to the Welsh economy and to the earnings of 6,500 people in Wales, and now that there is a shift from the use of metallic materials to composites in new aircraft design and manufacture, does the Minister share my alarm at the reports that the Spanish Government are targeting our wing business in Wales? Will he guarantee that he will do everything in his power to ensure his Cabinet colleagues' support for the new A350 aircraft?

Nick Ainger: My right hon. Friend the Secretary of State recently met Airbus senior management because of the latest concerns about EADS and its share price. He was assured that Airbus has a long-term commitment to both Broughton and Filton. They are world leaders in wing production and have a skills base that is almost uniquethe only other is in Seattle, in the United States. My right hon. Friend was assured of the long-term future of Airbus investment in Broughton and Filton.

Cheryl Gillan: But does the Minister agree that bringing the A350 to Wales will create 10,800 more jobs in UK aerospace and that we need firm assurances from Welsh Ministers that they will back the production of A350 wings in Wales and in the United Kingdom?

Nick Ainger: Of course we have done that, and we have put significant launch project funding into all the schemes that Airbus has promotedabout 21 billion over the years. There is no question but that the Government are fully backing the Airbus project. Bearing in mind that investment and the jobs in Broughton that are dependent on it, I am concerned that the hon. Lady is now raising these issuesthey do not exist.

Mark Tami: Airbus employs more than 7,000 people at Broughton, and that has been possible due to the support of this Government, investing in successful manufacturing. Airbus is European co-operation; does my hon. Friend agree that the Conservative party's attitude to Europe could well threaten the future of such co-operation?

Nick Ainger: I totally agree. My hon. Friend emphasises the importance of Airbus not just to the local economy but to the economy of north Wales and north-west England. It provides more than 7,000 extremely well-paid jobs, and it is there because the Government have regularly invested substantial sums to support the development of new technology at that plant and in Filton. As my hon. Friend says, the anti-European attitude that still runs through the Conservative party threatens that co-operation.

Adam Price: One of the main reasons Wales is languishing at the bottom of the wages league under this Government is the loss of high-wage manufacturing jobs. The Labour candidate in Blaenau Gwent said that existing Government policy had failed and there was a desperate need for a new manufacturing strategy. Does the Minister, or indeed the Chancellor, agree?

Nick Ainger: Let me tell the hon. Gentleman that just recently, although there have been problems in certain companies, International Rectifier, which makes semiconductors, has brought 250 well-paid jobs to Newport; Ford, developing the new Volvo engine in Bridgend, has created 250 new jobs; LogicaCMG has created 765 well-paid jobs with a high-tech MOD contract; and other jobs are being created in the finance and service sectors. Although there may well be problems in certain sectors, the economy in Wales is diverse. We are seeing expansion upon expansion, and new jobs are being created where other, older jobs are being lost. It is a dynamic economy and we are moving forward. Wales is doing extremely well.

Search and Rescue Operations

Albert Owen: What discussions he has had with ministerial colleagues on the future of search and rescue operations in Wales.

Nick Ainger: Search and rescue provision in the UK is continuously reviewed by the UK search and rescue strategic committee and its associated working groups. No changes to the level of service are currently planned to the helicopter search and rescue service in Wales, operated by the Ministry of Defence and the Maritime and Coastguard Agency.

Albert Owen: I thank my hon. Friend for that response. He will be aware of the excellent work that is done by the search and rescue community in Wales and the contribution of Squadron 22 that is based at RAF Valley. He will be further aware that the headquarters of SAR is to be moved to Valley in the coming year. There are concerns about the harmonisation that is planned by the Ministry of Defence and the Department for Transport. Owing to financial savings involving the private finance initiative, that could undermine the operations and deployments in place. Can the Minister give assurances that that will not be the case? Will he press the MOD and the Department for Transport for those assurances?

Nick Ainger: I can give my hon. Friend that reassurance. Rigorous assessment of options by the joint MOD-Marine and Coastguard Agency procurement team led to a recommendation of harmonisation under a private finance initiative. The MOD and the MCA will continue jointly to manage and task the service, and will retain a high proportion of military aircrews. There will be no reductions in the service provision of search and rescue helicopters. The Government are committed to delivering a future service that is at least as effective as the present one. I hope that my hon. Friend is reassured.

PRIME MINISTER

The Prime Minister was asked

Engagements

Tom Brake: If he will list his official engagements for Wednesday 5 July.

Tony Blair: Before listing my engagements, I am sure that the House will join me in sending our condolences and sympathy to the families of Corporal Peter Thorpe and Lance Corporal Jabron Hashmi, who were killed in Afghanistan over the weekend. They were immensely brave and committed soldiers and we mourn their loss deeply.
	This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I will have further such meetings later today.

Tom Brake: In the past week we have witnessed the systematic destruction of the infrastructure that the Palestinian people need for their survival. Does the Prime Minister agree that this military action is in breach of international law and constitutes collective punishment that the international community should condemn and bring to an end as soon as possible?

Tony Blair: I entirely agree that the situation is very serious. We have made it clear what we believe that the Israeli Government should do in the circumstances. However, I return to the point that I have made on many occasions. We can condemn Israel on the one hand or the Palestinian Authority on the other. The only thing that will resolve this issue ultimately is a restart to the negotiation process and a two-state solution that is in the interests of Israelis and Palestinians.

George Howarth: As London has its own elected assembly and a directly elected Mayor, who even has his own foreign policy, does my right hon. Friend think that the time is approaching when we should ban London Members from voting [Interruption.]

Tony Blair: Tempting though that occasionally might be, no. I think that it is important that we have one class of Member of Parliament, which is an essential part of our constitution. I hope very much that the right hon. Member for Witney (Mr. Cameron) will rethink his position on this. It is wholly contrary to the spirit of our constitution, and an utterly irresponsible thing to do or propose.

David Cameron: I join the Prime Minister in paying tribute to the two servicemen killed in Afghanistan on 1 July  Corporal Peter Thorpe and Lance Corporal Jabron Hashmi. Lance Corporal Hashmi's family said yesterday that he was proud to serve in the British Army, and that you can be proud to be both Muslim and British. The family is right and the extremists who seek to divide us are wrong.
	The British troops in Afghanistan have our full support. Preventing that country from becoming again a rogue state that backs terror is, inevitably, a complex mission. It means supporting the Afghan Government in a range of tasks and confronting the Taliban. Major General Peter Wall has said that resistance has been more virulent than had been anticipated. Can the Prime Minister confirm that that is the case?

Tony Blair: Yes, it is clear that the Taliban will fight hard, particularly in the south of the country, to regain their foothold and turn Afghanistan back into a failed state where al-Qaeda had its headquarters and the people were brutally oppressed by a regime that was not just bloody in what it did to its own people but in what it exported to the rest of the world. So, yes, they will fight hard, and the mission of the British forces is absolutely clear, as is the mission of the other forces, for example, Germany and Italy in the north and west of the country: it is to support the Afghan Government centrally and locally so that they can reconstruct their country and so that what the Afghans voted fora stable, prosperous, democratic, tolerant societycan come about.

David Cameron: The Prime Minister said yesterday that to date he had received no requests for reinforcements. Does that statement cover equipment, including helicopter lift capacity? What discussions has he had with our NATO allies, so that should further combat troops or equipment be required our allies will also make an increased contribution?

Tony Blair: We have not at the present time received a request from the commanders on the ground for more resources, either for logistics or for troops, but of course they will look carefully, now that we are in Helmand province, at what we need. As I indicated yesterday, if they need more, we will make sure that they get more. In the end, it is important to realise that the operational plans are drawn up and implemented by the commanders on the ground, which is how it should be, but if they desire more from us, of course, we will make sure that we give them every support.
	I just want to make it clear that the British troops who are there are doing the most extraordinary and heroic job. They are fighting a battle that is important not just for the security of Afghanistan but for the security of the wider world. It is absolutely right that we give them every support, and we will do so. Sadly, we have lost troops in Afghanistan, and so have many other countries, including Germany, Italy and Spain. It is important to realise that when they give their lives in the service of our country they do so in support of a mission that is absolutely necessary and vital to our security in this country.

David Cameron: At the heart of the whole mission is the reconstruction of Afghanistan. There are many different people involved, including the Afghan Government, the aid agencies and the UN. Last week, the shadow Foreign Secretary suggested appointing a special representative mandated by the UN and approved by the Afghan Government to help to bring those efforts together. The Minister for Europe said that that was a sensible suggestion, and I wonder whether the Prime Minister has given further consideration to the proposal to ensure good co-ordination on the ground.

Tony Blair: I have not given consideration to it myself, but no doubt we will do so, and if it is sensible we will do it. The most important thing is to try to back the efforts of the Afghan Government to build up their own police and army and make sure that their economy, which the Taliban effectively turned into a narco economy, is reconstructed on a basis that does not depend on the drugs trade. That is a very difficult mission, for which we have lead responsibility in the whole of Afghanistan.
	That is important, too, for other countries. In the south of the country, we have about 3,600 troops at the moment, and there are about 6,000 troops from other countries. That is a NATO and United Nations mission, and it is important that the international community realise that it is not just about the British and American effort but about the united effort of the international community. We have to stay the course. Whether it is in Afghanistan, where we are supporting efforts at democracymillions of Afghans came out and decided that they wanted a democracyor in Iraq, our job is to stand alongside our allies, fighting the terrorists and fighting for democracy.

Ann McKechin: Given the disappointing failure of last weekend's world trade talks, will my right hon. Friend give me an assurance that he will use his best endeavours to ensure that western leaders live up to their promises to provide a fairer trade deal for the world's poor?

Tony Blair: I shall do my level best. There are two aspects to the issue. First, we must make sure that we secure a proper development package, including aid for trade, which is important for the poorest countries so that they have the capacity to trade properly if markets are opened up. In addition, we will try, even at this late hourand it is very late indeedto make sure that the other countries come together and support us in trying to ensure that we do not just have freer markets in Europe, the United States and Japan but freer non-agricultural market access in the G20 countries, including Brazil and India. However, it is very, very late in the day to secure an agreement, and the next couple of weeks will be critical, particularly in the run-up to the G8 conference.

Menzies Campbell: May I associate myself and my right hon. and hon. Friends with the expressions of condolence and sympathy from the Prime Minister and the Leader of the Opposition?
	On 1 March the Prime Minister told me that he did not believe that the arrangements for the extradition of United Kingdom citizens to the United States were unfair. Does he still believe that?

Tony Blair: I do believe that the arrangements are not unfair, for the reason that I can give the right hon. and learned Gentleman, although I totally understand the concern of the individuals who are to be extradited and their families as to what may happen, particularly in terms of bail, when they get to the United States. I will say more about that in a moment. What is important to realise is that the changes that we made a few years ago ended a situation where the United States was uniquely, to its detriment, not given the same arrangements as other countries. The purpose of the change [Interruption.] Listen to the facts. The purpose of the change was to bring the United States into line not merely with European countries, but with countries such as Australia, New Zealand and Canada. That was the purpose of the change, but I totally understand the concern about bail arrangements and other matters.

Menzies Campbell: Once cannot but observe, what about the principle of reciprocity? What could be more unfair than for a British citizen to be extradited to the United States without a prima facie case and under a treaty that the United States declines to ratify? Will the Prime Minister act to bring an end to this practice?

Tony Blair: If I may again deal with the reciprocal arrangements, it is not true that the United States has a different evidential burden from this country. The probable cause, which is the burden that the United States places on countries that want to extradite from the United States, is analogous to what we now provide under the Extradition Act 2003. It is not correct to say that the United States has been given preferential treatment or that the arrangements in respect of evidence are not reciprocal. However, I do understand the real concern that the families will have about what happens when they go to the United States, and I have asked our officials to see whether there is any support or assurances that we can give so that if they are extradited, they are given the opportunity to be bailed.

Denis MacShane: The Prime Minister will be aware of the scourge of human trafficking, which has brought several thousand young girls to work as sex slaves in massage parlours and brothels in the UK. There is a Council of Europe convention on the matter, which 26 members of the Council of Europe have signed. Britain, alas, is not one of them. An all-party group of MPs is working on this. I do not ask the Prime Minister to agree at the Dispatch Box today to sign the convention, although that would be very welcome to Amnesty International, the Anti-Slavery Association and others working in the field. If he cannot do that, will he agree to meet an all-party group, who will try to persuade him that the Home Office officials resisting the convention are wrong and the new Home Office team should sign it forthwith?

Tony Blair: I am very happy to meet my right hon. Friend and any such delegation to discuss the issue.

Jeremy Browne: Everyone recognises the extra money that has been spent on the NHS, so why is Musgrove Park hospital in Taunton struggling with a 6 million deficit? Why does it have to close the Alfred Morris centre, which gives specialist treatment to people with severe head injuries, and why do people from my constituency still have to travel 100 miles to Bristol and back to receive cancer treatment?

Tony Blair: I thank the hon. Gentleman for his recognition of the extra money that has gone in. It is that extra money which, for example, in the strategic health authority in which his constituency is situated, has meant more than 6,000 more nurses, 800 more doctors and over 1,000 more consultants; and for treatment for the patients, all the waiting times, out-patient and in-patient, have come down dramatically. But all health trusts will have to live within their means. That is so, irrespective of the amount of money that we put in. It is important that health authorities and the trusts take the decisions that are necessary to put our health service on a sustainable basis. That sustainable basis is one where waiting times will continue to fall and treatment will continue to improve.

Paul Flynn: Does my right hon. Friend recall his Defence Minister saying in April that the Helmand mission would last three years and the British Army would come out of it without firing a single shot? Five of our soldiers have died, and many Afghans have diedsome Taliban and some civilians. With this mission, which has been described by many in the military and elsewhere as a mission impossible, are we not in grave danger of driving the ordinary people of Afghanistan into the hands of the Taliban? Could we explain to our American friends that we cannot win hearts and minds by using bombs and bullets?

Tony Blair: First, let me correct the impression, which my hon. Friend has just repeated, that my right hon. Friend the Home Secretary said that not a shot would be fired on this mission. My right hon. Friend actually said that he would be happy if that were so, but went on to warn people that
	We are here to stabilise and build the country and the Taliban and the terrorists want to stop us doing that. If they attack us we will defend ourselves and if defending ourselves at the operational level means taking pre-emptive action we will do that.
	He did not say that it was a mission without dangerhe said precisely the opposite. On the idea that, somehow, we are driving people into the arms of the Taliban, there is a democratic Government in Afghanistan for the first time. That is why girls have been allowed back into school, which I would have thought even my hon. Friend would support. Our job is to stay with those people who want Afghanistan to progress as a democracy and to defeat the terroristsanything else would be a dereliction of duty.

David Cameron: This week marks the anniversary of the first suicide bombing attacks in Britain. The whole country will remember the 52 people of all faiths and none who were killed and the hundreds who were wounded. Of the 500 victims who have applied for compensation, almost 300 are still waiting for final settlement. Does the Prime Minister agree that those people should not have to wait so long?

Tony Blair: I agree that it is important that their claims for compensation are dealt with as quickly as possible. Obviously, the compensation authority is independent from the Government, but it is trying to make sure that not only the interim claims but the full claims are paid out as soon as possible. We constantly discuss that matter with the compensation authority as well as with the relatives of the victims of 7/7.

David Cameron: Yesterday, the Prime Minister was right to emphasise the role that the Muslim community itself should play in helping to root out extremism, but we all have a role to play in helping to foster a greater sense of common citizenship. Does the Prime Minister agree that we need an ambitious nationwide programme, including youth volunteering and school exchanges, as part of that? Does he further agree that such a programme would work best with the participation of all parties right from the start? And will he make sure that that happens in all cases in future?

Tony Blair: I agree that it is important that we engage everyone in fostering good community relations and in saying that irrespective of whether people are of one religion or creed or another, we share the British values of tolerance, respect for other people, democracy and liberty. It is important that those values are carried through into every part of our community, and I welcome the help and participation of all political parties in that. Indeed, it is very much to the credit of the political system in this country that all major parties are committed to such a future for Britain. When I said yesterday that I think it important that the Muslim community confront the issues within it, I did not mean to diminish our responsibility to do our part, too. The fact is that we are all going to have work very hard at rooting out extremism. We face a global movement with a global ideology, and we will defeat it only when we defeat its ideas as well as its methods.

Mark Lazarowicz: Reports today have once again highlighted the recent increases both in household fuel bills and the profits of energy companies. Will my right hon. Friend ask the Department of Trade and Industry to look at the case being made by consumer organisations for a better use of social tariffs, which bring down fuel bills for vulnerable consumers while at the same time meaning that those who consume more energy and the power companies pay more?

Tony Blair: I am sure that those at the DTI will have heard my hon. Friend's words and will no doubt look into them.

Philip Davies: Last week, my hon. Friend the Member for Monmouth (David T.C. Davies) launched Safer, a campaign to stop all forms of early release. Given that a poll conducted over the weekend shows that 89 per cent. of the public support such action, does the Prime Minister think that the time has come to make sure that prisoners serve the sentence handed down by the courts in full, and if not, why not?

Tony Blair: There has always been a system of parole in this country. I would point out to the hon. Gentleman that over these past few years prison sentences have been longer and there have been more people in prison. What is important is that there is consistency in sentencing, and we are working on that with the Sentencing Guidelines Council.

Mohammad Sarwar: My right hon. Friend knows that I am a Glasgow MP representing a Glasgow constituency. Is it his intention to make me a second-class MP representing a second-class nation?

Tony Blair: No, I can assure my hon. Friend that that is not my intention. As a member of the Conservative party said yesterday, such a thing would be a constitutional abortion. It would be completely wrong. The fact is that our constitution relies on there being one class of MP in this House. That is absolutely right, and under this Government it will always remain so.

Andrew Robathan: Will the Prime Minister tell the House on how many occasions he has started an investigation under his ministerial code, and whether he thinks it appropriate that his Deputy Prime Minister should stay with an American business man

Mr. Speaker: Order. This matter has been put before the Parliamentary Commissioner, and there will be no more discussion about it until the Parliamentary Commissioner has dealt with it.

Anne Snelgrove: Churchfields school in my constituency was one of 100 schools that achieved specialist status earlier this week. The school, where I am a governor, was in special measures until three years ago, so specialist science and maths status represents a considerable achievement by the staff and students. Will my right hon. Friend join me in congratulating Churchfields and all the new specialist schools? Does he agree that specialist schools not only provide choice and a guarantee of educational achievement for parents but are crucial in fulfilling our aim of motivating schools to achieve better results

Mr. Speaker: Order. I think that the Prime Minister will be able to reply.

Tony Blair: First, I should like to congratulate Churchfields school in my hon. Friend's constituency on attaining specialist status. A majority of schools are now specialist schools, and their results are improving very rapidly; they go alongside those of the city academy programme. The truth is that having significantly raised results in primary schools, we are now creating the basis upon which we can get those increased results in secondary schools as well. This is all part of the process of investment and reform to give us a 21st century education system.

Nick Gibb: Can the Prime Minister explain to my constituents why they face the prospect of the downgrading of the accident and emergency unit at St. Richard's hospital in Chichester and the downgrading of the A and E unit at Worthing hospital, why Littlehampton hospital is a pile of rubble, with the rebuilding programme on hold, and why the Richard Hotham mental health unit in Bognor Regis war memorial hospital is to close just five years after it opened?

Tony Blair: I do not know about the specific circumstances of the hon. Gentleman's constituency. However, I have no doubt that if I do look at the specific circumstances, I will find that there has been massive investment in health care services in his constituency, all of which was opposed by him and his colleagues, that waiting lists are down, and that cancer and cardiac treatment is better. Yes, it is true that difficult decisions have to be taken in all constituencies as to how we configure health care for today's world, but those decisions need to be taken no matter how much money is put in. It is absurd for Conservatives to complain about funding in the health service when they voted against the very funding that we put in.

Rosie Cooper: Despite some very challenging financial situations in my constituency, the staff of Southport and Ormskirk hospital have done fantastic work in meeting, ahead of schedule, the Government's waiting list targets and achieving the best waiting times for A and E in the strategic health authority. Does my right hon. Friend join me in congratulating those staff?

Tony Blair: I give my congratulations to my hon. Friend's hospital. If we take health care throughout the entire country, we see that it is not merely that in-patient and out-patient waiting lists are dramatically different from where they were nine years ago. In accident and emergency departments, which we were discussing a moment or two ago, I think that most people would say, never mind even on a statistical basis, that they are considerably improved from where they were a few years ago. That is because we have not only put in extra money and staff but reformed the system of working. Many congratulations to my hon. Friend's hospital; I am sure that that situation is replicated in many places throughout the country.

Laurence Robertson: Will the Prime Minister join me in congratulating staff at Winchcombe hospital in my constituency on the services that they provide for the quite elderly population there? Given that the Government quite rightly want to see more patients being treated closer to home, will he also join me in condemning the decision by the local health trust to close the hospital?

Tony Blair: Again, I do not know the precise circumstances of the situation in the hon. Gentleman's constituency, but I shall be very happy to look into the matter and to write to him about it. I am sure he would accept, however, that, as a result of the investment that has been put into his constituency and many others, all the measurements for waiting times for treatments are now significantly better than they were a few years ago. But, as I said in answer to a question a moment ago, no matter how much money we put in, there will be a limit, and health authorities and trusts must operate within that limit.

Lindsay Hoyle: Does my right hon. Friend the Prime Minister agree not only that the rising energy costs for domestic customers are unfair but that the whole of the manufacturing sector is now suffering because of the rise in energy bills of between 35 and 40 per cent. in the past 12 months? That is placing the heavy users of energy in this country's industrial sector at a disadvantage compared with our European competitors. Will my right hon. Friend use his good offices to get a fair deal from the energy companies?

Tony Blair: The issue that my hon. Friend raises is an important one for industry, and it is one that the energy review specifically addresses. We need to improve our storage capacity for the energy that we import, but we also need to ensure that we have a sustainable basis for energy supply that will not make us dependent on imports. As my hon. Friend rightly implies, prices have gone up three times in the past few months, which has made things very difficult for intensive energy users. The answer is to keep the economy stable, which we are doing, and to ensure that we have secure supplies for the future.

Ian Paisley: I associate myself with the expressions of sympathy offered by the other leaders for those who are in deep sorrow today.
	Is the Prime Minister aware that the Northern Ireland Assembly is to come back on Friday? Is he also aware that IRA-Sinn Fein have announced that they will boycott that meeting? Does he agree that the deputy leader of IRA-Sinn Fein would be better employed doing the work that he is supposed to be doing for his constituency, rather than going round the world praising other terrorist organisations and their murder campaigns?

Tony Blair: Obviously, it is important that that debate takes place on Friday, and I hope that everyone will participate in it. However, the single thing that would make the biggest difference, as I am sure the right hon. Gentleman accepts, would be to ensure that we have proper devolved institutions in which these debates and decisions can take place.

Gordon Banks: Africa bears 24 per cent. of the global disease burden, yet it has only 3 per cent. of the world's health workers and 1 per cent. of the world's health spending. A year on from the Gleneagles G8 summit, how does my right hon. Friend view the progress that we have made on Africa and on climate change? What steps will he take to ensure that those two issues are kept at the top of the international agenda at St. Petersburg and beyond?

Tony Blair: We will have a debate on Africa at St. Petersburg, where I hope we will recommit ourselves to the commitments made by the G8 last year. There has been substantial progress on debt relief, which has meant that hundreds of thousands of people in countries such as Nigeria, for example, are now able to have schooling that they would otherwise not have had. We have also put forward a plan, with funding, to achieve near-universal access to HIV-AIDS treatment. Treatment of the killer diseases is another key objective from Gleneagles that we are taking forward. Furthermore, our 8.5 billion investment in education in countries overseas over the next 10 years is an example of this country playing a leading role in what I have often described as the great moral cause of our time.

Anne Main: Given that we want to get people out of cars and on to trains, will the Prime Minister explain to my constituents why the Minister for Transport has accepted a bid that included a baseline proposal of an increase in fares and fewer passengers on First Capital Connect's lines?

Tony Blair: It is, of course, important that we get more people using public transport. In the end, however, the companies must make ends meet, and the only way in which the Government could avoid such developments would be through putting even greater public subsidy into transport. I know that the hon. Lady was not a Member of the House at the time, but when we put forward plans allowing us to treble transport expenditure, her party voted against them.

Eric Illsley: My right hon. Friend will be aware that at the end of May, the National Institute for Health and Clinical Excellence confirmed its decision to restrict the Alzheimer's drugs Aricept, Exelon and Reminyl, and completely to withdraw Ebixa from the NHS. That decision was met by Alzheimer's carers and doctors with utter dismay, and it will obviously have an adverse effect on 750,000 Alzheimer's sufferers. Even at this late stage, will my right hon. Friend revisit that decision?

Tony Blair: As I understand it, an appeal against that decision continues. In respect of Ebixa, I think that I am right that NICE said that it should be part of a clinical trial rather than available now. We are putting more research and development money into cures for Alzheimer's and dementia, but I totally understand the concern, which has led to the appeal. The fact is that having an independent system under NICE has been right. My hon. Friend will remember how many different arguments there were, before we set up that institute, about whether treatments were justified. The system is right; the decision can be looked at.

Speaker's Statement

Mr. Speaker: I have a brief statement to make to the House. I must inform Members that I have received the following letter from the Clerk of the House:
	Dear Mr Speaker,
	As I have previously indicated to you, I would wish to retire on 30th September this year, on the 41st anniversary of my first joining the service of the House.
	The procedural and management responsibilities which are now combined in the post of Clerk of the House present a formidable challenge. But I have been able to rely on the high quality and commitment of the staff at every level in the House and on the strengths of my fellow members of the Board of Management, who bring a richly diverse range of skills and experience to their work for Parliament. I have also been greatly assisted by the moral and practical support which I have received from you, from the Deputy Speakers, and from your colleagues on the House of Commons Commission.
	The House of Commons is a much criticised institution; and its own Members are often as critical as anyone. But whatever its perceived failings, the House remains at the centre of political and public life and is the envy of most other countries in the world. Its durability and occasional bloody-mindedness have made, and continue to make, a crucial contribution to the country's stability and prosperity. I have never for a moment regretted making my career in the House, and I am very grateful for having had the opportunity to serve as its Clerk.
	Yours sincerely,
	Roger Sands.

Jack Straw: Members on both sides of the House who have benefited from the sound and impartial advice of the Clerk, Sir Roger Sands, will be sorry to learn from your announcement, Mr. Speaker, that he is due to retire. As I have no doubt that Members on both sides of the House will wish to express their appreciation of his service to the House, I shall table a motion relating to his retirement before the House rises for the summer recess, to give them an opportunity to pay an appropriate tribute to him.

Community Hospitals

Patricia Hewitt: In the White Paper Our health, our care, our say: a new direction for community services, published in January, we outlined our proposals to create a new generation of community hospitals and services. Today I am announcing that we will make available up to 750 million of public capital investment to realise that vision, and I am publishing guidance on how primary care trusts can access the money. A copy of the guidance has been placed in the Library, and copies are available from the Vote Office.
	Developments in medical technology and clinical practice are making it possible to provide far more care in local communities, closer to where people live, and even in people's own homes. During the unprecedented public consultation for Our health, our care, our say, people made it clear that, whenever it is safe and effective, they want more convenient, local and personal services, with more consultations, diagnostic tests and treatments in local facilities. Moving more services out of acute hospitals and into communities will help to improve care for patients, and will deliver better value for money for taxpayers.
	We are already making a major investment in GPs' premises and health and care centres, as well as in community hospitals. A billion pounds of capital has been invested through the NHS local improvement finance trusts alone. We will now take the next step by making up to 150 million of capital available in each of the next five years, starting this yeara total of up to 750 millionfor the development of a new generation of community hospitals and services.
	The investment capital will be available to PCTs for a wide range of community schemes, including the redevelopment of some existing cottage hospitals. Services could include in-patient and out-patient facilities, diagnostic tests, specialist clinics, minor surgery, health and social care services for people with long-term conditions, dentistry, rehabilitation and palliative care and other services. For people who are seriously ill or injured, or people needing complex treatments, care will of course remain in acute hospitals, where patients can be treated by specialist teams using the most advanced technology.
	PCTs that want to use the new investment capital will need to engage fully with local people to ensure that services are truly designed for the needs of patients and users. They will also be expected to work closely with other local partners, including general practices and other NHS services, local councils, voluntary organisations and others in the independent sector, to develop effective plans.
	I made it clear in the White Paper that decisions on the long-term future of existing community hospitals should not be made solely in response to short-term budgetary pressures that are not related to the viability of the community facility itself. I have asked strategic health authorities to assure themselves that all PCT proposals for changes to community hospitals are consistent with the long-term strategy of the White Paper: to move care closer to patients' homes, and to ensure that local people have been properly consulted.
	Ultimately, however, changes in the configuration of local health care services in a particular area require local decision making. Primary care trusts, with their broad perspective across hospital, community and primary care, are best placed to make those decisions in consultation with local people and their SHAs. The new investment fund will make it easier for PCTs to establish the right services in the right places for the people whom they serve.
	PCTs will be able to choose how they use the newly available capital, investing it simply as public capital, extending the scope of their local investment finance trust schemes or adopting a new approach: the community venture, a more flexible joint venture approach that will give a wider range of public, voluntary and private parties an opportunity to pool their skills, or indeed their investment, for the benefit of the local community. It will, however, be for PCTs to decide which model is adopted. Whichever one is chosen, PCTs will of course need to demonstrate that investment proposals are sustainable and can be funded over the longer term. As we said in the White Paper, we expect to see a strategic shift in how the NHS provides care, with a redirection of funding to support the provision of more convenient services in local communities.
	PCTs that already have advanced plans for community services, as many have, should submit them to their strategic health authorities by the end of September. For schemes that are ready to start in the next financial year, proposals should reach the health authorities by the end of December. After that, there will be a regular rolling programme managed through the SHAs.
	This new programme builds on the unprecedented investment that we have already made in the NHS. It will help to ensure that there are even better services for patients, with better value for money, and I commend it to the House.

Andrew Lansley: I am, of course, grateful for advance sight of the Secretary of State's statement, although it has all been trailed in the press beforehand, as usual. The Secretary of State once again claims that she is the saviour of community hospitals.  [ Laughter. ] Well, Labour Ministers have been saying that for four years. The right hon. Member for Darlington (Mr. Milburn) said exactly the same thing in 2002. However, within recent months 80 community hospitals have been under threat of closure or partial closure.
	In January, the Secretary of State said that community hospitals would be safeguarded by the White Paper. Why has that had so little positive effect? We discovered last week with the abortive notice in the  Official Journal of the European Union that the Secretary of State's policy is not even understood in her own Department. As a result of the White Paper, we also know that her policy is not understood or not listened to across the NHS. Why are they simply ignoring her?
	The threat to community hospitals is little diminished since January. For example, in Wiltshire, services have already been lost at Westbury and Bradford-upon-Avon hospitals, and there are threats to Warminster, Melksham and Trowbridge. The Secretary of State talked about the review process, but the strategic health authority in Suffolk did the review process on proposals in the area and said that it would close Walnuttree hospital, St Leonards hospital, the Sage day hospital in Newmarket, Hartismere hospital, the Hayward day hospital in Ipswich and Bartlet hospital, and reduce services at Aldeburgh hospital. That is the result of the review process that that Secretary of State says will happen as a consequence of her White Paper.
	The Secretary of State now offers a capital fund. In some circumstances, capital for rebuilding or refurbishment will be useful and I welcome that. However, can the Secretary of State explain what proportion of this fund will go into providing health centresher so-called polyclinicsfor GPs and out-patients, rather than existing community hospitals that continue to provide in-patient services? Last year the NHS had capital that it did not spend. The underspend on capital budgets by the NHS last year was 1,165 million. The NHS has capital: it is overspending on revenue. PCTs are cutting revenue and contracts. Community hospitals are closing because their primary care trusts will not commission services from them, because of the revenue shortfall. Can the Secretary of State explain how a capital fund can be a solution to a revenue problem?
	If the Secretary of State wanted to support community hospitals in the way they need it, she would ensure that the plan in the White Paper for unbundling the tariff happened nownot in 2007-08. Will she do that? Will she also ensure that the tariff is split so that part of the payment for patients who are stepped down from the acute sector goes to the community hospitals where they are sent? Will she also confirm that decisions about community hospitals will be reviewed in the way that she describes and will be made specifically in consultation with, and with the agreement ofif they offer itlocal GPs? In theory, from the end of this year, practice-based commissioning should mean that GPs decide where they want to commission services, but the PCTs are pre-empting that and closing services so that they will not be available for GPs to send patients to.
	The Secretary of State said that the fund would be available to the third sector, including charities. I hope that the whole range of charities and voluntary organisations will be able to bid. She mentioned community organisations and I hope that she will make it clear that local private sector and voluntary partnerships can work with GPs to take over community hospitals. Many such hospitals used to be locally owned, because they were established through public subscription. Will the Secretary of State ensure that the assets can be transferred to the third sector and out of the NHS, at a high discount, so that they can be owned and supported locally? That will be as important as the ability to bid on the fund.
	No one can say that health care provision will not change. Care closer to home is a legitimate objective and has been for many years; that is what community hospitals offer. I know from my special interest in strokes that that is precisely what community hospitals can do; that kind of intermediate care bed is exactly what people need to step down at an early stage from an acute hospital. Under this Government, the number of such beds increased between 2002 and 2004-05, but they are now being shut down. There is a complete reversal of approach by the Government.
	Why? Because community hospitals are being caught in a financial squeeze between rising costs in the acute sector and the cost of meeting GP contracts. We told the Secretary of State last yearshe admitted it in Januarythat short-term financial pressures are forcing decisions that are contrary to the long-term interests of the NHS. Unfortunately, that is still happening and she needs to take more measures to stop it. She must give community hospitals the chance to prove their worth and GPs the chance to decide where patients are treated, and she must tell the House why the promises made in January have yet to be fulfilled.
	The Secretary of State did not have the boldness to tell the House today what she told the  Sunday Express last Sunday when she said:
	We want to make it as easy to access NHS treatment as it is to get a pint of milk. You can pick it up on your doorstep or go to a supermarket...All that's needed is a bit of cash and encouragement.
	Well, back on Planet Earth we know what is really going on. I know what is happening in my own constituency, where services and wards are being shut at Brookfields community hospital in Cambridge; the young people's mental health service is being shut down and the PCT is refusing to fund the hospice at home service. That is what is happening on Planet Earth. The Secretary of State should come back to Planet Earth and resolve those problems for community hospitals.

Patricia Hewitt: I thank the hon. Gentleman for a reply that was somewhat longer than my initial statement[Hon. Members: No, it wasn't.] Indeed, it was[ Interruption.] The Leader of the House was counting and I shall rely on him in the matter.
	The hon. Member for South Cambridgeshire (Mr. Lansley) talked as though no new community hospitals and facilities had been opened under our Government, but thanks to the investment that we have been making, which Opposition Members voted against, new community hospitals have been opening in recent years; for instance, Withington hospital in south Manchester, Prospect Park in Berkshire, which I visited last week and which offers superb intermediate care, the new community hospitals in Edgware and Willesden and many others.
	It is absurd of the hon. Gentleman to imply, as I think he is trying to do, that every one of the existing community hospitals is fit for a modern health service. The reality is that many are not. We have many existing cottage and community hospitals where, despite the absolute dedication of the staff, they are struggling with Victorian workhouse facilities that are wholly unsuitable in a modern health service. In some cases

Stephen O'Brien: Name them!

Patricia Hewitt: Let me give the hon. Gentleman the example of Norwich, which I visited a couple of weeks ago, where the local director of community services and his staff explained that they had had too many community hospitals and too many community hospital beds. They have reorganised services and closed two community hospitals, taken beds from a third and put the services into a new facility in an existing hospital. They have put more staff into the community, so they are looking after more patients in their own homes, as well as in the community hospital. They are giving patients better care, the staff have greater job satisfaction and they are saving money that can be invested in other services. That is precisely what the NHS in Suffolk, Norfolk, Gloucestershire, Surrey, and many other parts of the country that have been overspending, needs to do to provide better services for patients, with more modern, but quite possibly fewer, community hospital facilities and more services delivered to people in their own communities, all of it fit for patients in the modern world.
	The hon. Gentleman asked how a capital fund would help deal with revenue shortfalls or overspending in some parts of the country. Yesterday, I had the opportunity to meet NHS colleagues, my hon. Friend the Member for Selby (Mr. Grogan) and people from the wider Yorkshire area. Their primary care trust has financial problems, but they are clear that, by reorganising services that are currently spread across three or four NHS and local council sites and putting them into one new community hospital, enabled by our new capital fund for which they will bid, they will be able to give patients better services closer to home and save the money that they need to save to live within their very substantially increased means.
	The hon. Member for South Cambridgeshire mentioned unbundling the tariff. Let me restate our commitment to unbundling the tariff: we are working on that, and we will introduce a pilot next year. But it is already perfectly possible for PCTs to contract outside the tariff, thereby perhaps getting better value for money for the community services that they need. In any good consultation on new community services and hospitals, GPs will already be involved; they have to be involved, of course, particularly in anticipation of practice-based commissioning.
	The full range of partners certainly includes the private sector. For instance, it delivers MRI scans in Withington community hospital in south Manchester, which has brought down the waiting time for such scans from months in some cases to just two weeks for most patients, with the report delivered to the GP 48 hours later. That is a superb service. The future of community hospitals can also certainly include the transfer of assets, where that is appropriate and agreed by the local NHS, to a local community charitable trust. That is precisely what is happening with the Wells-on-Sea community facility, which was proposed for closure, but which will now house community facilities. Through such organisations, the voluntary sector and the local community has an enormously important role to play in modern community hospitals.
	The hon. Gentleman ended his speech by scorning the idea of more convenient medical services. The reality is that, with modern medical technology, it is now possible to offer, for instance, some chemotherapy services for cancer patients not only in a community hospital or health and care centre, but in their own home, which is far more convenient and much better for such patients. Renal dialysis provides another good example of that. Thanks to the investment that we are making in the NHS, this capital fund will enable that new generation of services to be provided to our patients.

Kevin Barron: I welcome my right hon. Friend's statement, but is she aware of the breathing space project, which is being built in Rotherham? It will bring services for COPDchronic obstructive pulmonary diseasepatients in both the acute and primary sectors under one roof, so that we can treat such lung disease a lot better than it has been treated before. Although that means that the local district general hospital will lose beds and some services, as consultants will work in other places, it will lead to a massive improvement in patient care. Will my right hon. Friend make sure that patientsand the work force, as wellare consulted in all areas where we will have such changes to replace the great, big, all-singing, all-dancing district general hospitals of the past, which many patients do not need?

Patricia Hewitt: My right hon. Friend is absolutely right. We can move many services, particularly for patients with long-term conditions such as COPD, into the community and into patients' own homes. As a result, we will give people better care. My hon. Friend the Member for Doncaster, Central (Ms Winterton), who is the Minister responsible for health services, has confirmed that she has visited the site for the new services mentioned.
	In many places, decisions are taken to reduce the number of beds in acute hospitals because those services can be better provided for patients within the community. That also represents better value for money, which means more savings, as Norwichto give just one exampleindicated, so that money can be reinvested in better care for other patients, and also in the costs of some of the extraordinary new drugs that are coming on-stream, but many of which are also pretty expensive.

Steve Webb: I thank the Secretary of State for her statement. It is always fascinating to step with her into the parallel world that she inhabits, where shiny new hospitals are delivered to a glad and happy local population.
	Something puzzles me about the Secretary of State's statement. When swathes of community hospitals are closed, the Secretary of State does not come before the House, but when they are about to be opened, she does. Can she explain why the closure of community hospitals is somebody else's fault, but the opening of them is her responsibility?
	Does the Secretary of State envisage that at the end of this processat the end of her visionthere will be more community hospitals than the Government inherited? Can she also clarify whether she will be counting in her total figure former district general hospitals, such as Frenchay hospital, which will be reduced to a community hospital? Will we find that the Secretary of State comes back to the House to tell us that she has opened Frenchay community hospital, while overlooking the fact that she has closed a district general hospital?
	The financing of the new community hospitals might be under the local improvement finance trustLIFTprivate finance initiative, or traditional forms of funding, but does the Secretary of State not accept that there has been much criticism of the value for money of LIFT as recently as this week, and of PFI? Is she confident that trusts will not be saddled with long-term financial burdens on over-the-odds terms, compared with more traditional ways of paying?
	Is this process not yet another example of the centralism of this Government? Can the Secretary of State confirm that PCTs will need the permission of health authorities, which will need the permission of Whitehall? Where is the local democratic accountability in this process? Why cannot the Secretary of State let go? Why is there a control-freak tendency, so that when she talks the language of localism what she means is, Whitehall will decide?

Patricia Hewitt: The hon. Gentleman, for whom I have considerable respect, is talking rubbish today. Whether the local NHS decides to close certain community facilities because they are no longer the right ones for local people, or to open new or refurbished facilities because they are the right ones for local people, should be local decisions. What I, as Secretary of State, am doing is ensuring that the support is in place for such local decisions, and in particular that the capital investment is in place, which many parts of the NHS have told us that they need so that they can reorganise their servicessometimes their existing cottage and community hospitalsin order to give better services to patients.
	The hon. Gentleman needs to focus on the services that are being delivered to patients, rather than on the number of buildings or beds, because not only in respect of acute hospitals, but also of some community hospitals, it is better for many patients if community services are taken into their own homes. That was precisely the point that the excellent nursing and care team in the Norwich community hospital made to me: by reducing the number of beds and putting half of the staff into the community, they were able to give intermediate and rehabilitation care to more patients, some of them in the community hospital, and others looked after by community staff in their own homes. Moreover, they had reduced emergency admissions to the acute hospital by more than 600 in the past six months, thus enabling savings of money that can then be reinvested in better care. That is what the hon. Gentleman needs to look at.
	Of course I will open community facilities, as I did at Prospect Park in Berkshire last week, regardless of whether they replace an old district general hospitalor, possibly, old community hospitalsor they are simply new hospitals. The test in all of this, which I invite the hon. Gentleman to support, is to get the best services for patients with the best value for patients and for public money.

Ronnie Campbell: Blyth community hospital in my constituency is a wonderful community facility, but I have been told on the grapevinenot officiallythat the minor emergency centre, which deals with minor injuries, is to close to save money. If we want to bring that sort of care nearer to the people, doing that is not the answer. I remind the Secretary of State that at least 35,000 people depend on this emergency facility; otherwise, they have to go five, six or seven miles to the next nearest hospital.

Patricia Hewitt: I am not aware of the details of the situation to which my hon. Friend refers, and as he suggested, at this point it is a rumour rather than a firm proposal.

Ronnie Campbell: Will the Secretary of State look into that?

Patricia Hewitt: I will, and I know that my hon. Friend will, too.
	Of course, one question with minor injuries units is exactly how many local people are using them and whether they therefore offer the best services for the best value for money. I know that my hon. Friend will be closely involved in any consultation on a local proposal, and I will of course examine it and write to him about it.

Quentin Davies: Does the right hon. Lady realise that last week my constituents received the devastating blow of being told by the United Lincolnshire Hospitals NHS Trust that it proposes to withdraw all acute surgery, the consultant-led accident and emergency department and critical care from Grantham hospital? That news has caused consternation in my constituency, and I hope that I may shortly have the opportunity to speak to the right hon. Lady about it. Does she appreciate that today's announcement that a capital fund is available for setting up community hospitals will be regarded as incomprehensibleand, indeed, hurtfulby my constituents, who have been told that they are about to lose their first-class district general hospital, even though no other such hospital is nearer than three quarters of an hour away?

Patricia Hewitt: There is, of course, an extremely difficult situation in the hon. Gentleman's constituency in the wider health community. Unfortunately, there are serious deficits resulting from overspending, and the local NHS is having to consider some difficult options, to see how it can continue to offer the best possible services to people within the substantially increased budgets that we have given it. Indeed, other parts of the region are having to hold back on their own spending to compensate for that overspending while the problems there are sorted out. I understand completely the concern expressed by the hon. Gentleman's constituents and other local peopleI have received such correspondence myselfand I will of course meet him to discuss it. But I hope that he will work very closely with the local PCT to make certain that the best decisions are taken to ensure that the NHS in his community lives within its means and, within that very substantial budget, goes on offering the best possible care to his constituents.

Jane Kennedy: Today's statement will be welcomed by my constituents because it offers the best possibility of further development at Broadgreen hospital and, potentially, a much better future for the hospital in the constituency of my hon. Friend, and neighbour, the Member for Liverpool, Garston (Maria Eagle). Does my right hon. Friend agree, however, that the success of this project, which is very welcome, will depend on good quality commissioning locally? Will she therefore undertake to look at the GP contract? As GPs take on greater responsibility for commissioning locally, we will require them to be transparent and accountable in undertaking such commissioning, so that they can continually demonstrate that they are acting in the best interests of the patients whom they are there to serve.

Patricia Hewitt: My right hon. Friend makes an extremely important point, and I hope that her local PCT will come forward with a proposal to use some of the new capital investment. She is absolutely right about the accountability of GP practices for decisions made under practice-based commissioning. We have already made it clear that it is the PCT's responsibility to ensure proper transparency and accountability to local peopleand, ultimately, to this Housein respect of decisions taken by GPs and the PCT on how the money is spent, and from where services are commissioned.

Peter Lilley: Is the Secretary of State aware that at a public meeting last September in my constituency, which I chaired, her local NHS officials told us that Red House hospitalthat is, Harpenden memorial hospitalwas safe, but that eight months later they announced that it was to close all beds in order to save 1 million a year? Can she confirm that her fund will not in any way help to avert that, and that when the East and North Hertfordshire NHS Trust, in pursuit of its obligation to cut spending by a quarter over the next three yearsfrom 260 million to 200 milliondowngrades the district hospital, she will not claim that that is somehow creating a new community hospital? And will she come to our constituencies and try to convince us of the value of that move?

Patricia Hewitt: Far from cutting the budget for the East and North Hertfordshire NHS Trust, we are asking it to live within the very substantially increased budget that it has received over the yearsthanks to the investment that we have made, which the right hon. Gentleman voted against. We have put more money than ever before into the NHS, in his area and everywhere else, but we do expect the NHS in Hertfordshire to live within its means. It should not expect the NHS in other parts of the country to bail out its overspending at the expense of patients in the rest of the country, where the NHS is balancing or even underspending on its budgets. This issue has to be sorted out and difficult decisions will have to be made across Bedfordshire and Hertfordshire to ensure that the local health community has the right services in the right facilities, giving the best possible value for money. I am sure that the right hon. Gentleman will continue to take part in the consultation that the local PCTs are having to undertake, in order to ensure that the best decisions are made, but that will be done within the framework of the increased budget that we have made available.

Gwyn Prosser: I warmly welcome the Secretary of State's statement about extra funding for small hospitals, but what advice has she got for the health trusts in east Kent that propose to strip away even basic services from Buckland hospital in Dover? That will almost certainly result in its closure, before it has an opportunity to look at the alternatives that such extra funding could provide.

Patricia Hewitt: As I pointed out earlier, I have been saying for some months to PCTs that they need to look at the longer-term strategy. In many cases, the local NHS is finding that by reorganising servicesby putting more services into people's homes, for example, and sometimes by bringing together provision from several different sitesit can provide a better quality of care, but with better value for money as well. I know that my hon. Friend, who is very concerned about this issue, will ensure that his constituents' voices are heard in the consultation that has to take place whenever any such reconfiguration of services is proposed.

Edward Davey: On the question of making an early bid for some of the investment fund in order to rebuild Surbiton hospital, is the Secretary of State aware that Whitehall's capital rules on the use of NHS moneys generated from the sale of surplus land and buildings in the local community prevent PCTs from taking up some of the best options to fund, or part-fund, the rebuilding of community hospitals? Will she look again at those rules, so that PCTs such as Kingston's can use their own capital more efficiently, as well as gaining from her fund?

Patricia Hewitt: The hon. Gentleman raises a very important point, and some PCTs have made representations to me about the difficulties associated with the current rules on disposal of assets. We need to look at that issue, and, as the hon. Gentleman will probably remember, I have already asked Sir Michael Lyons and the Audit Commission to look independently at the financial framework within which the NHS operates. I am waiting for their report and the recommendations that I hope they will make to ensure that we have the best possible framework, giving PCTs the real flexibility that they need to reorganise services and to use their assets in the best possible way for the benefit of patients.

Mike Hall: North Cheshire Hospitals NHS Trust, in my constituency, is considering reconfiguring services between Halton and Warrington, and the Mid Cheshire Hospitals NHS Trust is looking at reconfiguring services between the Victoria infirmary, in Northwich, and Leighton. Much of what is proposed is very welcome, but the real concern locallyin both townsis that Halton could lose in-patient activity to Warrington, and that the Victoria infirmary could lose it to Leighton. The proposal affects Leighton because Victoria infirmary needs capital investment of some 2 million to bring its services up to standard. Will this fund help in that regard?

Patricia Hewitt: As I have said, the fund is for community hospital provisionand I think that my hon. Friend is referring to the need for upgrading an acute hospital facility.  [Interruption.] Where the aim is to upgrade facilities in an existing hospital to provide better community health services and to meet the strategy set out in the White Paper, the fund will be available. The detailsthe criteria that we will useare all set out in the guidance to which I referred.

David Curry: Is the Secretary of State not alarmed at the huge gap that there obviously is between the profession of a commitment to community hospitals that she makes here, and the near universal impression out in the country that community hospitals are under almost permanent threat? Is that impression surprising, given that the Craven, Harrogate and Rural District Primary Care Trust, the chief executive of which she saw yesterday, has halved, literally overnight, the number of beds at Castleberg and Ripon community hospitals, reducing them to below the historical level of demand? Will the right hon. Lady please accelerate the review of the perverse funding system whereby PCTs buy a package of care at the acute hospital and a certain number of days' stay, and if a patient is then transferred to the community hospital the funds do not follow that patient within the tariff, and the PCT has to find additional funds? That is the lifeblood that is being cut off from community hospitals, and that process is responsible for the halving of capacity at my community hospital.

Patricia Hewitt: I think that if the right hon. Gentleman looks at the figures, he will find that large numbers of community and cottage hospitals closed in the years when his party was in government. He will also find that at least as many new community hospitals have been opened as have closed in the years of our Government. As for funding, he is right to say that the tariffs that we pay hospitals for acute services do, depending on the operation concerned, include an element of rehabilitation, although often not the full costs of rehabilitation. That is one of the reasons we are working on unbundling the budget, but even within the current system primary care trusts have considerable flexibility. A large part of NHS funding is not spent on acute services to which the tariff applies, and can be used outside the tariff with all the flexibility that primary care trusts need to deliver services within community hospitals and other community settings.

Michael Jabez Foster: I welcome my right hon. Friend's statement, which provides the possibility of exciting developments in local services in Hastings and Rye, but may I put it to her that one of the problems with that yet further increased choice is that hospital trusts are saying that they are losing the critical mass of providing services in the hospitals? Proposals such as closing maternity units and accident and emergency departments are a result of that. What can she do to ensure that the critical mass is not lost in district hospitals?

Patricia Hewitt: What we will ensure is that patients have more choice and control over their health services. That is very much what the public want, and what a modern health service ought to deliver. We will also make sure that services are available in the best possible way, with the best value for money. This is not about saying, Let's keep everything as it is, in particular district general hospitals. It is about looking at which services can be better deliveredbetter for patients, that iswithin the community closer to home, and which services, because of their medical complexity, need to be delivered in a regional or even national specialist centre. Where the issue about critical mass relates to the provision of an essential serviceparticularly accident and emergencyit is the responsibility of the primary care trust and the strategic health authority to make sure that the essential service is not threatened and that the right relationship continues between the accident and emergency service and, particularly, orthopaedics and trauma services.

James Clappison: The Secretary of State mentioned the age of some community hospitals. Is she aware of the case of Potters Bar community hospital? It is a modern, purpose-built facility that is barely 10 years old, yet it is due to lose 15 of its 45 beds when a significant part of the hospital is put to other uses as a result of revenue shortfalls suffered by the primary care trust. Is there anything in the statement to help Potters Bar hospital, or to help the primary care trust with its financial problems? Does the Secretary of State have any other plans to help Potters Bar hospital, or are we to have the ludicrous situation of an excellent modern facility closing for the very type of short-term reasons that the Secretary of State says she wants to avoid?

Patricia Hewitt: The hon. Gentleman has just referred to the fact that there is an excellent modern facility at Potters Bar, so it does not sound as though it will need the capital investment fund that I have just announced. He said that it was proposed to remove 15 out of the 45 beds. I am not aware of the detailed situation, but I know that in many parts of the country, community nursing and therapy teams have found that by reducing the number of in-patient beds, staff can support more patients who need, for instance, rehabilitation support within their own home. That model is already working well in Berkshire, Norwich, Dudley and many other places. That may well be precisely the logic that the local NHS is applying in Potters Bar. I think that I also heard the hon. Gentleman say that although those beds are closing, other services will be provided in that part of the building. On the face of it, without knowing the details, that sounds exactly like the flexible use of community facilities, responding to changing patient needs and changing medical technology, that the local NHS should be engaging in as it continues to get the best possible services with the best value for money.

David Drew: In the Secretary of State's letter to strategic health authorities of 16 February, which looked at how community hospitals would fit within the White Paper Our health, our care, our say, mention is made of specific criteria for judging the future of community hospitals. Obviously that relates both to the capital spending that we are hearing about today and to the problems in a place such as Gloucestershire, where we are having a huge review on the back of deficits largely run up elsewhere. Are the criteria now published, and if not, when will they be published? May we have them as soon as possible?

Patricia Hewitt: My hon. Friend raises an important point, and he and I have met to discuss some of the local issues in his constituency. The guidance that I have published today includes the criteria for access to the capital investment fund. The broader issues of how community services should be reconfigured, and the strategic direction, were set out in the White Paper itself. Obviously I am happy to look in more detail at the points that he has raised and to write to him.

Peter Viggers: Is the Secretary of State aware that her references to consultation and local decision making will be treated with anger and contempt by many people who have been embittered by an empty consultation procedure of which the Government take no notice whatever? I chaired a meeting in Alverstoke in my constituency, at which 800 people unanimously demanded the retention of the hospital at Haslar, which has excellent facilities. Those are not stupid, uninformed people. In many cases, they are former patients who know that the facilities are outstandingly good. Will the Secretary of State, even at this stage, order an investigation by the independent reconfiguration panel into the future of medical services in south Hampshire?

Patricia Hewitt: It is simply untrue to say that the NHS or the Government ignore local consultation. I refer to the recent consultations that we had on the reconfiguration of primary care trusts, where a number of options went out for consultation and decisions were made in the light of that local consultation. The overview and scrutiny committees of local councils have an increasingly important role to play in ensuring that local consultations held by the NHS on reconfiguring services are genuine, and that the outcome is satisfactory for local people. If an overview and scrutiny committee is dissatisfied with the way in which the NHS has conducted the consultation, it has the power to refer the matter to me. Obviously, I look at each of those cases extremely carefully, and where I think it right to do so, I refer them to the independent review panel for its advice. However, I stress again that those decisions are best made locally wherever possible. I hope that in the hon. Gentleman's constituency, in relation to the situation to which he refers, the local primary care trust, local GPs, local people and the council will continue to work together to try to get the best outcome as they reorganise services.

John Grogan: Will my right hon. Friend say a further word about the community venture model of community hospitals that she referred to? That will be particularly welcomed by the strong partnership being formed to plan the rebuilding of Selby war memorial hospital, given the strong belief locally that that hospital is likely to be more sustainable in the long run if there is strong co-operation between GPs, the local council, the local health service and the voluntary sector.

Patricia Hewitt: I am grateful to my hon. Friend for coming to see me yesterday to discuss that, and bringing NHS colleagues who described the possibilities for a new community hospital in Selby. The thinking behind the community venture model is that it would allow not simply a public-private partnership on the LIFTlocal improvement finance trustmodel, but a much more flexible partnership between the NHS, other public service partners, such as, for instance, the local council, and the voluntary sector, as well as, potentially, the private sector. That would focus not just on a building, which is really what the LIFT partnership is about, but on the services that need to be provided both in a community hospital building and in other settings such as GP practices, health centres and patients' own homes.

Ian Taylor: Is the Secretary of State aware that in the eastern part of my constituency, it is not so much hospital closures that are taking place, as the downgrading of the services in those hospitals? For example, Epsom hospital is losing its general hospital status quite rapidly, and three community hospitals are being starved of revenue because the primary care trust is encouraging patients to move out of a general hospital straight home, which has led one local GP to say that there were unsafe discharges. There are serious revenue problems, so how will the Secretary of State's announcement about her capital plan help my constituents?

Patricia Hewitt: The proposals for Epsom involve the development of a smaller critical care hospital surrounded byI thinknine community hospitals or health care centre settings. More care will thus be delivered closer to patients' homes, which will be much more convenient for them, but critical care and complex acute cases will be located in one specialist hospital facility. There has been wide consultation on that model of care, and it got widespread public support. The issue is not cuts in fundingI think that the hon. Gentleman suggested something of that kindbut the way in which the unprecedented sums that we are investing in the NHS, which will continue to grow by 9 per cent. this year and next year, are used to best effect for the local population, and how we ensure that when there is overspending, the NHS in the area comes back into financial balance and does not expect other parts of the country to go on bailing it out.

Graham Allen: A little girl born this morning in the middle of the most deprived ward in my constituency will live 14 years less than a little girl born this morning in Wollaton, the prosperous ward next door. It will not surprise the Secretary of State to know which ward has a mega regional hospital, and which has no community hospital or facilities whatever. In that context, will she consider entertaining bids not merely from the local PCT, but from the collective local strategic partnershipsuch partnerships exist in each of the major cities in the UKso that we can move forward a lot more quickly? One of the most difficult points that was raised with me this morning when I tested the idea locally was anxiety about having private finance initiative-related schemes, or LIFT-related schemes, because of their long-term expense. Will she consider bids and offers from organisations other than PCTs, with a broader financial base?

Patricia Hewitt: Yes, we certainly would consider such bids. My hon. Friend is doing outstanding work as chair of his local strategic partnership, so I thank him for that. The community venture model to which I referred earlier is precisely suited to a bid from a partnership of the kind that he describes. Capital investment could come from a variety of places, thus reducing the revenue implications for the NHS in future years. The model is good and it will help to address some of the shocking health inequalities that persist in our country, which are why we are determined to insist on fair funding for different parts of the country with different health care needs.

Malcolm Moss: Two in-bed units at Doddington community hospital in my constituency have already closed recently, in the teeth of opposition from GPs and the total opposition of local people. What price the much-vaunted boast of listening to local opinion, I ask myself. Does the Secretary of State agree that if GP practice-based commissioning is to mean anything at all, GPs should have a crucial say in what services are provided in their local community hospitals?

Patricia Hewitt: As I said earlier, it is absolutely essential that local people are consulted. In many parts of the country, those consultations, which often take place on very difficult issues, have been extremely well led and conducted by primary care trusts, and they often lead to a solution being found that is better than the original options put forward. It is important that that happens and that GPs are closely involved. GPs who are closest to their patients are superbly qualified to act as not only advocates for those patients, but experts on redesigning services and bringing them closer to home. If services are redesigned they will change, so, for example, there might be fewer beds in some places and more in others. The reconfiguration of services, difficult and unpopular though it sometimes is, is part and parcel of creating the best possible modern health care service, so I would hope that the hon. Gentleman would support that.

Keith Vaz: I warmly welcome the additional money that the Secretary of State has announced and congratulate her on her victory over the Treasury in securing it. How will it affect the pathway project in Leicester? As she knows, that project will be downsized by 200 million and the downsizing will fall primarily on the hospital in my constituency, Leicester general. Will the reorganised PCT be able to apply for money from this fund to deal with any of the facilities and services that it will not be able to provide because of the reduction in funds for pathway?

Patricia Hewitt: My hon. Friend raises an important point. The pathway project in our city is a PFI project. At the moment, there is no reason at all why it should not continue under the private finance initiative. As he and I heard recently from a hospital chief executive, the aim is to provide far better services for patients from Leicester and Leicestershire with all the facilities in the original proposal, but with better value for money, so that the local NHS does not find itself in financial difficulties in future years. It will certainly be possible for the PCT to examine whether the new fund would also assist in improving community facilities, but whether it uses the new capital fund or PFI, one test, of course, is that the services and buildings must be financially sustainable for many years to come.

David Howarth: May I return to the central question of the capital nature of the funding? How precisely will the availability of capital funding help Brookfields hospital, for exampleI have to say to the hon. Member for South Cambridgeshire (Mr. Lansley) that that hospital is in my constituency, not his, although his constituents use it? It has three wards that are threatened with closure because of a PCT revenue deficit that amounts to some 45 million. Surely the two policies do not fit together, and on a day when closures are being announced, the new policy makes no difference.

Patricia Hewitt: As the hon. Gentleman knows, there is, unfortunately, overspending in the NHS in Cambridge and Cambridgeshire. That must be dealt with because it is taking place despite the fact that there is more money than ever before and more growth money is coming in future years. Of course the NHS in his constituency is examining how it can reorganise services. I described earlier the situation in Norwich, where by reducing beds in some facilities and closing two of the older community hospitals, better services are being provided for patients and financial savings are being made that can be reinvested in other services. It seems to me that that is precisely what the hon. Gentleman should be supporting and expecting from his local NHS. The capital will help when what is needed is a reorganisation of services, perhaps across different facilities, the modernisation of existing old buildings, or the creation of a completely new facility that would, for example, allow services to be taken out of the acute hospital and provided more effectively, with better value for money, in the new facility. Although the capital cannot be used simply to cover overspending on the revenue account, it can certainly be used to support a reorganisation of services that will be more cost-efficient and thus help to deal with financial problems.

Michael Fallon: Given the turmoil being caused in south-west Kent by the threat to services at Sevenoaks hospital, Edenbridge hospital and Tonbridge hospital, and the fact that the Secretary of State is now allowing a year for primary care trusts to submit bids for the new capital, would it not have been more sensible to have announced a moratorium on any further closures until all the bids had been received and evaluated and the tariffs had been sorted out?

Patricia Hewitt: No, I do not accept that at all. There are circumstances where it is clear that the local NHS has too many community hospitals or that some such hospitals are based in outdated buildings that no amount of capital can sensibly be expected to modernise. There may be too many beds in some community hospitals, or perhaps more staff could be working to support more patients in their own homes. Those are judgments that the local NHS needs to makeparticularly, but not only, in view of current financial difficulties. The White Paper at the beginning of January set out a very clear strategic direction, which we have reinforced with PCTs and strategic health authorities. The new capital fund will meet many of the requests for capital support that PCTs have put to us. Contrary to the repeated assertions of Opposition Members that we have had nothing but closures of community hospitals, the Community Hospitals Association has confirmed that for every closure in recent years, a new hospital has been opened.

Points of Order

Edward Garnier: On a point of order, Mr. Speaker. May I draw a matter to your attention and seek your advice? On 4 July, I received a written answer from the Home Office in response to a question that I had tabled on 30 March. My first point is that that is lamentably slow. Secondly, if one looks at the content of the answer, there are good grounds for concern. My question was:
	To ask the Secretary of State for the Home Department how many inmates were being held in open conditions who had previously been Category A or Category B prisoners on 31 December of each of the last 10 years.
	The answer from the Under-Secretary of State for the Home Department, the hon. Member for Bradford, South (Mr. Sutcliffe), was:
	This information is not held centrally and could only be obtained by examination of individual records at disproportionate cost.
	It seems to me that that is precisely the sort of information that should be held centrally and that should be retrievable by the Home Office if it is to run a proper Prison Service. Furthermore, what on earth does the expression disproportionate costit keeps being thrown back at usmean? It is entirely subjective. I appreciate that you, Mr. Speaker, are as frustrated as we are in having to deal with these issues, but surely the Government should at least occasionally condescend to become accountable to the House.

Mr. Speaker: The hon. and learned Gentleman is seeking to debate some aspects of the answer, which I cannot do. However, on the question of the length of time Ministers take to answer parliamentary questions, I answered the hon. Member for Hemel Hempstead (Mike Penning) on a similar point of order yesterday. The Leader of the House and I are seeking to ensure that Ministers get replies to the House timeously. I have had the full co-operation of the Leader of the House on that matter.

Edward Garnier: Further to that point of order, Mr. Speaker. I am most grateful for your answer, which I find extremely helpful. In your discussions with the Leader of the House, could you ask him to ask his ministerial colleagues to explain the basis on which they use the expression disproportionate cost? Unless that is explained and unless there is some factual basis for using the expression, it has no meaning.

Mr. Speaker: I have a background in the trade union movement and I recall that there was always a rule that the electrician did not do the plumber's job. Similarly, the Speaker does not do the Back Bencher's job. It is for the hon. and learned Gentleman to pursue the matter in parliamentary questions and it would be a good idea if he did so. Otherwise, I am doing his job, which would go against my trade union principles.

David Wilshire: On a point of order, Mr. Speaker. I hope that I can raise my point of order without appearing to challenge your authority, as I am conscious of the consequences of trying to do so. During Prime Minister's Question Time today, you stopped my hon. Friend the Member for Blaby (Mr. Robathan) from finishing his question. I do not wish to question your ruling in any respect, Mr. Speaker, or to seek in any way to open up the subject matter of that question. However, as I thought about what happened, I saw something that seemed to me to be new, as I had not encountered it during my 19 years in the House. I sensed two separate issues: one was the code of conduct for MPs; the other was the ministerial code. While I entirely accept your ruling, Mr. Speaker, it raised an approach that I have not come across, as I said, in my 19 years. Would you be willing to reflect on my points and decide whether it would be appropriate to provide some general guidance on how we should or should not approach Question Time in the light of what happened today?

Mr. Speaker: In a sense, I am grateful to the hon. Gentleman for raising that point of order, which helps me to explain the position. He mentioned how long he has been in the House and he will know that I have been a Member for 27 years and it is important to note that we have not always had a Parliamentary Commissioner, who is a new officer. We must recognise that every hon. Member is entitled to natural justice, which means that when Members put a matter before the Parliamentary Commissioner, they should leave it with him. Until such time as the commissioner reports back, it is inappropriate to raise the matter with the Prime Minister or any other Minister. We should bear it in mind that the question put to the Prime Minister was about a specific Ministerthe Deputy Prime Ministerand that there is nothing to stop any Member raising with the Prime Minister general matters relating to ministerial conduct or the conduct of an hon. Member. I say again that when it comes to specific cases, if any Member has a complaint before the Parliamentary Commissioner, it is only fairand the House would expect me to say thisto leave the matter to the commissioner.

David Wilshire: Further to that point of order, Mr. Speaker. May I say that I find what you have just said very helpful indeed and I hope that my colleagues will also find it to be useful guidance?

Greg Knight: Further to that point of order, Mr. Speaker. Are you effectively saying that in respect of complaints that are before the commissioner, you will treat the matters that they deal with as though they were sub judice?

Mr. Speaker: Yes, that is exactly what I am saying. As far as I am concerned, the matters are sub judice, so in specific cases they should not be put before a Minister of the Crown while the Parliamentary Commissioner is looking into them.

David Gauke: On a point of order, Mr. Speaker. Further to the issues raised by my hon. and learned Friend the Member for Harborough (Mr. Garnier) about the delays in answers to Home Office questions, I know that you are well aware of our concerns. Indeed, I have experienced considerable delays in getting my own questions answered. I tabled a question on 25 May asking the Home Secretary how many written questions tabled before 5 May remained unanswered. I received a holding response on 15 June, but I have still not received a substantive response a month later. That highlights the fact that it is impossible to evaluate how many questions have not been answered. I wanted to bring the matter to your attention, Mr. Speaker, and to underline our concerns about delays, particularly in the Home Office, in responding to parliamentary questions.

Mr. Speaker: I will look into that matter and reply to the hon. Gentleman.

Climate Change (Commercial and Public Services Sectors)

Alan Whitehead: I beg to move,
	That leave be given to bring in a Bill to make provision about the reduction of greenhouse gases; to promote energy efficiency and the consumption of renewable and low carbon energy in the commercial and public services sectors; to provide for the Secretary of State to report to Parliament on energy usage in the commercial and public services sectors; and for connected purposes.
	The Bill is, in essence, a simple measure. It requires the Secretary of State to take reasonable steps to ensure that, by 2010, the amount of energy usage in commercial and public sector undertakings reduces by at least 10 per cent. compared with 2005, and by a further 10 per cent. by 2020. It also requires the Secretary of State to take reasonable steps to ensure that such reductions in energy usage are not at the expense of higher carbon intensity in the resulting energy use.
	The measure requires the Secretary of State to produce a report on targets to be achieved for the production of heat and electricity for use in the commercial and public sectors from renewable sources, combined heat and power and microgeneration. It also requires the production of an annual report to set out progress towards those targets and state whether they are, in the Secretary of State's opinion, likely to be met, and if not, what additional steps he or she proposes to take to ensure that they are reached. We are all aware of the pressing need to take action on climate change. The most effective way to reduce emissions from energy use that contribute to climate change is to use less energy, and to use what we do more efficiently. We know that the prime users of energy are in the domestic sector and in the commercial and industrial sector in heating and powering the daily life of business and industry.
	We also know that we need to redouble our efforts to tackle climate change. That is now acknowledged with vigour in all parts of the political spectrum. Against that backdrop, it is worrying that the latest predictions about UK CO2 emissions are far from encouraging. The UK will reach and exceed its Kyoto commitments and I was proud that the UK Government aimed to go beyond that by introducing their domestic commitments on CO2 emissions.
	In February, the Department of Trade and Industry published its updated projections to 2010 about UK energy use and CO2 emissions. According to those, the UK was, at that time, on course to undershoot by 9.4 per cent. its domestic target to reduce CO2 emissions by 20 per cent. below 1990 levels by 2010.
	In the following month, the Government published their revised climate change programme, the purpose of which was to put us back on track to achieve that 20 per cent. CO2 reduction. That was acknowledged to be a challenging aim and the document that was produced included a comprehensive series of proposals about how to get back on track. However, the long-awaited document did not appear, at the time of its publication, to be able to achieve that. It was estimated that the new package of measures announced in the programme was sufficient to deliver emissions reductions of only between 15 to 18 per cent., leaving the UK still 2 to 5 per cent. adrift of its target.
	More recently, Cambridge Econometrics added to what might be termed the gloom with the publication of the latest edition of UK Energy and the Environment, which contained its updated forecasts of energy demand and CO2 emissions. The forecast was extended for the first time to 2020. Its conclusion was that, even taking into account the additional measures announced in the updated climate change programme, UK CO2 emissions would reduce by only 14 per cent., compared with 1990 levels, by 2010. In other words, unless more is done urgently, we will undershoot our domestic CO2 target by 6 per cent.
	Beyond 2010, Cambridge Econometrics predicts that carbon emissions are set to rise slightly in 2010-15, but to level off thereafter to 2020. The expected levelling-off between 2015 and 2020 is due to a decline in power generation emissions, but that is offset by the continuing growth in carbon emissions from the commercial sector and transport.
	The Government already accept the primacy of the aim of ensuring that we use less energy. I hope that, when the energy review is published, measures to introduce energy management arrangements for consumers of electricity and gas will feature strongly. In 2003, the energy White Paper described energy efficiency as the
	cheapest, cleanest and safest way
	of addressing all the UK's energy policy objectives. Subsequent Government pronouncements have continued to highlight the critical role that energy efficiency must play in reducing our carbon emissions.
	Furthermore, in the energy efficiency implementation plan, which was published a year after the White Paper, DEFRA explicitly acknowledged that action on energy efficiency measures in the commercial sector had been intermittent and restricted and
	not achieving its full potential.
	It also acknowledged that the commercial sector had the fastest growing energy use apart from aviation, principally from space heating and lighting, ventilation and air-conditioning. Other drivers include the energy services associated with the use of information and communications technology. In addition, that sector is highly electricity intensiveelectricity has an especially high carbon footprint. According to February's Department of Trade and Industry projections, if no new policy measures are introduced to tackle energy demand in the commercial and public services sector, its use of electricity is projected to soar by a staggering 45 per cent. from 1990 to 2020.
	In the light of the above, the Bill is clearly long overdue. I hope that it will be welcomed by all parties. Indeed, it has received support across the House. Early-day motion 2378 in support of the Bill was tabled only on 15 June, but has already attracted the support of 200 Members of Parliament. The Bill simply requires the Government to take reasonable steps to achieve the reductions in energy usage in the commercial and public services sector that they have already described as cost-effective and practicable. For 2010, that means a reduction in energy usage of at least 10 per cent. compared with 2005, and a further reduction in energy usage of 10 per cent. below 2010 levels.
	The Government have already explicitly acknowledged the need for binding energy efficiency targets by introducing in the Housing Act 2004 a target to achieve a 20 per cent. increase in energy efficiency in the residential sector by 2010. The Bill simply completes the policy picture by introducing similar binding targets not only for the domestic and residential sector, but for the commercial and public services sector.
	 Question put and agreed to.
	Bill ordered to be brought in by Dr. Alan Whitehead, Mr. Elliot Morley, Mr. Michael Meacher, Mr. Tim Yeo, Chris Huhne, Colin Challen, Helen Goodman, David Howarth, Mr. Nick Hurd, Bob Spink, Kitty Ussher and Mr. Edward Vaizey.

CLIMATE CHANGE (COMMERCIAL AND  PUBLIC SERVICES SECTORS)

Dr. Alan Whitehead accordingly presented a Bill to make provision about the reduction of greenhouse gases; to promote energy efficiency and the consumption of renewable and low carbon energy in the commercial and public services sectors; to provide for the Secretary of State to report to Parliament on energy usage in the commercial and public services sectors; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 20 October, and to be printed [Bill 209].

Orders of the Day

Finance (No. 2) Bill

Not amended in Committee and as amended in the Standing Committee, further considered.

Clause 19
	  
	Missing trader intra-community fraud

Dawn Primarolo: I beg to move Government amendment No. 18, page 22, line 6, at beginning insert
	'An order under this subsection may confer power on the Commissioners to make regulations or exercise any other function,'.

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 19 and 20.
	Amendment No. 121, page 23, line 3, at end insert
	'But no order may be made under this subsection on or after 22nd March 2009.'.

Dawn Primarolo: Clause 19 provides for a change in the VAT accounting provisions for sales of specific goods to tackle missing trader intra-community fraud. That fraud is an organised criminal attack on the VAT system, which, in 2004-05, is estimated to have cost up to 1.9 billion in stolen VAT.
	This change of accounting provision, known as the reverse charge, will be introduced once the necessary derogations from the sixth VAT directive have been agreed. It will apply to sales of certain specified goods between VAT-registered businesses. When the reverse charge applies, it is no longer the seller's responsibility to account for and pay the VAT on the sale to Her Majesty's Revenue and Customs, but that of the customer. Subsection (13) of new section 55A, which clause 19 introduces, of the VAT Act 1994 provides for amendments to be made to that Act by Treasury order where it is necessary and expedient for the reverse charge.
	Amendment No. 18 allows a Treasury order under this provision to amend the VAT Act to confer power on the Commissioners of Revenue and Customs to make regulations or exercise any other function. The amendment is necessary to ensure that the power can be tailored to introduce any change in the manner most appropriate to the circumstances. By that, I mean the evolving fraud being perpetrated. I appreciate that this is a wide power, but it is a necessary one, and of course it will receive proper scrutiny by this House.
	Amendments Nos. 19 and 20 reflect concerns highlighted following discussions with the European Commission about the need to ensure that the reverse charge mechanism does not create opportunities for further revenue lossa matter that I am sure will also be of concern to Members of the House. The amendments allow HMRC to introduce secondary legislation, first, to require VAT-registered persons trading in the specified goods to which the reverse charge will apply to submit reports of those transactions and notify HMRC when they first make supplies of those goods; and, secondly, to apply the existing penalties for similar statements in respect of intra-Community sales for inaccurate statements or non-submission of statements, as well as existing penalties for a failure to make any required notification.

John Bercow: As the Paymaster General rightly says, the amendment is widely drawn, and that might be entirely justified. She indicates that the power would be subject to proper scrutiny. Can she tell the House whether the provision would be subject to the negative procedure of the House or its affirmative counterpart?

Dawn Primarolo: The affirmative procedure will be necessary. I know that Members, including the hon. Gentleman, fully appreciate the importance and urgency of tackling this fraud and of the Department having the necessary powers. None the less, the House should still scrutinise how the powers are intended to be used and how they are used.
	I will go further and say that the details of the reporting requirement and how it will affect business means that there needs to be discussions with business as well. We have to make sure that there is the minimum impact, particularly regulatory impact, on businesses generally. The reporting requirement should be kept to an absolute minimum. The provisions will need to take into account consultation on those elements. Thus far businesses have been totally supportive of the Government's actionsthey have been consultedbecause they are well aware of the dangers that such fraud poses not only to the Revenue, but to their activities as legitimate businesses that can be undermined by fraud.

John Bercow: I am extremely grateful to the right hon. Lady for giving way again and for her helpful earlier reply. It is a matter of concern to me that when regulations of this sort are introduced they should as far as possible be subject to widespread advance consultation, and I have asked the Leader of the House if we could be sure on these occasions that, wherever possible, draft regulations are issued before the passage of the Bill. Might that happen in this instance?

Dawn Primarolo: The regulations are not available at this point. It would be foolish to reveal to the fraudsters, in advance of receiving agreement on the reverse charge, exactly how it will operate. However, it will be necessary for the regulations to come before a Committee through the affirmative procedure, and it stands to reason that they will have to be available for the Committee to read, with an explanatory memorandum. As I have said beforeI know that the hon. Member for Rayleigh (Mr. Francois) appreciates thisI am doing my best to make as much information as possible available to the House without prejudicing the Department's position in dealing with this important matter.
	I come finally to amendment No. 121. A similar amendment was tabled in Standing Committee, although it was not moved. Recognising the importance that the Opposition placed on the matter, I indicated to them that had they moved it I would have accepted it, and here it is again, so I repeat my assurance. The amendment seeks to insert a sunset provision, namely, that if the orders have not been made by 22 March 2009 the powers cannot be used. I do not think that it is necessary, but I see no problem with it, and if it reassures the Opposition that this matter will be dealt with in a timely fashion I am, as I indicated, prepared to accept it. We need to sort out the matter a lot earlier than 2009.

Mark Francois: I am tempted to say thank you and sit down quickly, but there are a few points that need to be made.
	I rise to move amendment No. 121 in my name and those of my hon. Friends. It seeks to insert an additional sunset provision into clause 19.

Mr. Deputy Speaker: Order. The hon. Gentleman does not have to move the amendment at this stage; we are debating the group of amendments. If the question is eventually to be put, I will ask him to move the amendment formally at the appropriate time.

Mark Francois: I am very grateful for your procedural advice, Mr. Deputy Speaker. As the Paymaster General said that she was going to accept it the amendment, I wanted to take no chances whatsoever.
	As we heard, the right hon. Lady said in the Standing Committee that she was minded to accept the amendment. We have brought it back to the Floor of the House on Report to test her commitment to that, and I am pleased to say that she has honoured her pledge, for which I am grateful.
	I want also to comment briefly on Government amendments Nos. 18 to 20, particularly No. 18, which appears to confer on Ministers a wide-ranging regulation-making power. It is therefore right that we should focus on that at least briefly before we allow the measure to be included in the Bill.
	Clause 19 refers to missing trader intra-community fraud, or MTIC fraud, as it is more popularly known, which is now a multi-billion-pound problem across the European Union. We debated the issue at some length in the Standing Committee on 11 May, and I do not intend to reprise the whole debate on the Floor of the House, but there are a few points that need to be reiterated in debating these amendments.
	The problem of MTIC fraud has become so widespread that the Office for National Statistics now adjusts UK trade figures to take into account estimates of MTIC fraud. As the ONS points out, by definition the extent of such fraud is difficult to measure accurately. However, HMRC, in a press release dated 26 January 2006, estimated UK VAT losses from MTIC fraud to be between 1.1 billion and 1.9 billion for 2004-05. It is interesting that the Paymaster General used the 1.9 billion figure a few moments ago. In April 2006 the Government announced the first annual fall in VAT revenues since the UK started collecting the tax in 1973, largely because of a significant rise in estimated carousel fraud, which is a particular breed of MTIC fraud.

Dawn Primarolo: I am happy to correct the record: there was a substantial fall in VAT receipts in the 1990s under a Conservative Government.

Mark Francois: I am not questioning that that occurred; I am saying that in this instance VAT receipts have fallen and the Government's explanation for that is fraud. I want to press the Paymaster General on the exact extent of the fraud in a moment.
	On 30 May  The Guardian estimated that the cost to the UK alone of MTIC fraud is now running at about 5 billion a year. Nicholas Watt wrote the following:
	The Guardian recently reported that carousel fraud jumped by 50 per cent. in the first quarter of the yearand has swollen by more than 500 per cent. in the past 12 months. Tax losses in Britain alone are more than 5bn this year.
	On 11 June, in an article in  The Sunday Telegraph, Jasper Copping and Robert Watts, under the headline Carousel gangs cheat UK out of billions, said:
	The alarming scale of carousel fraud indicates that the scam is spiralling and this year will far exceed the Government's estimate that it cost 1.9 billion in 2004-05.
	This seems a suitable opportunity to ask the Paymaster General to update the record. Given that her figures relate to 2004-05, and we are now in 2005-06, and in the financial year 2006-07, can the right hon. Lady provide an official updated estimate of the scale of the fraud as the Treasury now understands it to be? All the signs are that the scale of the fraud is rising, so we would believe it to be in excess of 1.9 billion a year.  The Guardian is talking about 5 billion and  The Sunday Telegraph is talking about some billions of pounds. To clear up the confusion, will the Paymaster General tell the House the latest Government estimate of the scale of MTIC fraud and its cost to the Exchequer? Part of their argument for the powers that are being sought, and the amendments, is that they are needed to combat the fraud. Therefore, the House will want to know how bad the Government think that the problem is and what the trend-line is.

Dawn Primarolo: The Government update the position on MTIC fraud in every pre-Budget report. The hon. Gentleman's observations about the Office for National Statistics and the trade statistics do not relate directly to either VAT that is claimed or paid out. The correct figures will be available in the PBR, as they are every year following the application of the strategy for reducing MTIC fraud.

Mark Francois: I thank the right hon. Lady for that reply. She may recall that when we debated this matter in Standing Committee on 11 May, I pressed her for some clarification based on last year's PBR figures. If I recall correctly, we did not get an updated figure at that time. If the right hon. Lady is saying, having read yesterday's debate, that we will definitely get an updated figure in the PBR this autumn, that is to be welcomed. It would have been more helpful if we could have had an updated estimate for the House today, bearing in mind the importance of the powers that we are about to agree to. However, we look forward to seeing the updated figure in the PBR.
	The Government's solution to the problem, as set out in clause 19, is essentially to introduce a so-called reverse charge procedure for certain categories of goods that can be specified by secondary legislation. This is intended to combat fraud by passing the duty to account to the Government for the VAT further down the chain to legitimate businesses. As the HMRC press release of 26 January 2006, which outlines the process, explained:
	Under the reverse charge procedure the suppliers of the goods do not account for VAT on their sales when selling to other VAT-registered businesses. Instead, it is the responsibility of the purchaser of the goods to account for the VAT, although they can recover this VAT in the normal way.
	This means that HMRC is not put into a position where it may have to make repayments of VAT where the corresponding tax on the purchase has not been paid to HMRC.
	A similar procedure was adopted some years ago to combat missing trader fraud in the gold bullion market, apparently with some success, and the intention is essentially to apply the same solution here. However, the Government's solution, including that which is set out in the amendments, depends on the Government obtaining a derogation from the sixth VAT directive in order to apply the reverse charge in situations where it was not originally envisaged.
	On 1 June, a little while after our debate on these matters in Standing Committee, the Financial Times reported that the EU tax commissioner, Mr. Lazlo Kovacs, was saying that the UK would most probably receive a positive response to the derogation request. On 7 June, there was an ECOFIN meeting in Brussels, which was rather famously attended by the Chancellor of the Exchequer at short notice. Was the matter discussed there? As we return to the subject on Report, which I welcome, I take the opportunity to ask the Paymaster General to update the House on progress in seeking the derogation that is necessary for the procedure to come into effect. In essence, what is the latest state of play in our negotiations with the Commission on this matter?
	Similarly, when do Ministers anticipate that they will be in a position to issue the orders to implement this element of the strategy? I repeat the question that I put to the Paymaster General in Standing Committee on this issue, which she really did not address at that time. Given the history of our negotiations with our EU partners in recent years, what is our plan B if, for any reason, the derogation is not granted? Given the scale of the problem, what do the Government intend to do then?
	I come now to Government amendments Nos. 18 to 20. As I understand it, the essence of amendment No. 20 is to confer a regulation-making power on Ministers to set out reporting requirements on suppliers in relation to the operation of the reverse charge. Amendment No. 19 appears to be essentially contingent on amendment No. 20, in that it allows for a penalty regime if reporting requirements are not complied with correctly as specified by Ministers in the regulations. This seems reasonable, but why was the provision not included in the Bill?
	Conversely, amendment No. 18 confers on Ministers a relatively wide-ranging regulation-making power in the context of the operation of the reverse charge procedure as a whole. As this is potentially quite a broad powercertainly compared with the other two Government amendmentscan the Government give us any examples of how the power is likely to be used in practice without tipping off the fraudsters? For instance, will the power be used only to specify the types of goods to which the reverse charge procedure will apply, or is it intended to be used more widely than that?
	Given the scale of the power, I had intended to ask the Paymaster General whether it would be subject to the affirmative resolution procedure. However, my hon. Friend the Member for Buckingham (John Bercow), in his usual perspicacious manner, has already elicited that information in an intervention. I am pleased that the Paymaster General has, quite rightly, told the House that the process would go through in practice after the affirmative resolution procedure has been adopted. We thank the right hon. Lady for that assurance, which we welcome.
	I move on briefly to amendment No. 121. The powers to introduce the reverse charge procedure are potentially quite powerful. They are therefore subject to the sunset provision contained elsewhere in the clause. The purpose behind the amendment is to introduce an additional sunset provision with regard to the adjustment of output tax. This seems a relatively non-controversial additional safeguard provision, and one that we hope might be accepted.
	The Paymaster General rightly recalled that she said in Standing Committee that she would have been minded to grant us the amendment had it been pressed at the time. For the information of the House, the  Hansard record stated:
	his amendment No. 3 touched on an issue that would not have been in dispute between us.[ Official Report, Standing Committee A, 11 May 2006; c. 120.]
	The right hon. Lady's more direct reaction, which unfortunately was not captured by  Hansard but which I clearly recall, was, Oh, I was going to give you that one. Perhaps she will be kind enough, as she has indicated, to grant us that amendment and to allow what is now amendment No. 121 to be incorporated in the Bill.

Julia Goldsworthy: I have only a few brief remarks. We dealt with the matter in some detail in Standing Committee. We are dealing with what is clearly a significant problem and real efforts have been made in various clauses to overcome it. The Government's amendments are an exposition of that. Amendments Nos. 19 and 20 seek to overcome openings where there could continue to be fraud, and amendment No. 18 confers extra powers, so essentially we are talking about regulation and reporting requirements.
	The Paymaster General referred to why it was not possible to reveal the draft regulations in advance. If fraudsters are trying to get around the regulations, what difference does it make if they see them in draft form? Surely their desire to get around them will be exactly the same.  [Interruption.] The Paymaster General is saying Time, but presumably once they are on the statute book, the fraudsters will still have time to avoid the regulations.

Dawn Primarolo: If draft regulations are available before the House has given the authority for the powers to be used, those who study them have time to get round the regulations before the authorities can use the powers that are conferred in them. That is the difficulty. That is why there has not been a long exposure of what the powers may look like. This is straightforward, really.

Julia Goldsworthy: I thank the Paymaster General for that clarification. There is a development beyond the regulations and reporting requirements that are set out in the amendments. If the requirements are to be enforced, they need to be supported by resources. I refer to an article in  The Times of 13 June, in which it is said that there are believed to be 9,000 people involved in spearheading the crime that is known as missing trader intra-community fraud, but Revenue and Customs has only 500 officers to tackle it. The article points to a lack of resources making very difficult the enforcement of whatever regulations are in place to overcome this fraud. In fact, the article goes on to say:
	There is even a suggestion that fraudsters believe the risk of detection is so low that they no longer trade actual goods but engage in a 'virtual' fraud where the trade exists only in the bogus documents used to support fraudulent VAT reclaims.
	What efforts have the Treasury made to ensure that it has sufficient resources to enforce the regulations?

David Gauke: I should like to touch on three issues relating to MTIC fraud.
	First, in Committee, the Paymaster General said that the German Government advocated applying the reverse charge generally, but she rightly said that that would create great difficulties for small and medium-sized companies, and was thus unattractive. It has been said, too, that there would be substantial fiscal consequences if we went down that route. Can the Paymaster General confirm whether that is correct? More significantly, I seek reassurance that the reverse charge approach will be neither generally applied nor negotiated away, although one member state is keen to go down that route.
	Secondly, I am concerned about the effectiveness of an approach that requires a reverse charge on certain goods. In Committee, the Paymaster General said at column 135 on 11 May that
	90 per cent. of...losses from MTIC fraud arise from goods that would be targeted specifically under the reverse charge mechanism.
	She went on to say that
	it tends to be small, high-value goods that can be circulated easilybut, of course, they are not circulated.[ Official Report, Standing Committee A, 11 May 2006; c. 135.]
	I should be grateful if the Paymaster General, drawing on the expertise of Her Majesty's Revenue and Customs, clarified that response. Is MTIC fraud a matter of small, high-value goods being circulatedthere is, however, a missing trader, so there is VAT fraudor is it a matter, as the hon. Member for Falmouth and Camborne (Julia Goldsworthy) suggested, of virtual transactions in which goods are not circulated at all? If it is the latter, it would be easy for fraudsters to move from the small, high-value goods to which the measures apply to other goods and services, so the Bill's provisions would not be as effective as we would all like.
	Thirdly, the Government have attempted to reduce MTIC fraud by toughening the VAT registration processthe Paymaster General will recall that I asked a question about that in Committee. Since then, I have tabled written questions on the issue, and I understand that, in the spring months, only 65 per cent. of VAT registration applications were completed within the target 21 days. Can steps be taken to improve and speed up the VAT registration, because it is worrying that it takes a substantial period to register? Complaints about registration come not just from applicants in the high-risk sector of small, high-value goods such as computer equipment and so on but from other sectors. Again, I would be grateful for the Paymaster General's comments.

Dawn Primarolo: I shall deal quickly with the points made by hon. Members. May I tell the hon. Member for Rayleigh (Mr. Francois) that the Government are confident that the European Commission will introduce a proposal in response to our request for a reverse charge? Discussion is under wayhence the amendmentsbut the proposal will be submitted to ECOFIN for a unanimous decision by the 25 member states. The Commission will not submit it before it is satisfied that there is a sensible working arrangement.
	That links to the point made by the hon. Member for South-West Hertfordshire (Mr. Gauke). We are confident that we will secure agreement, because this is a matter not just for the UK but for all European member statesindeed, Germany has been mentioned, and its preferred option is a general reverse charge. However, that would cause reporting problems for small businesses and people who are not involved in illegitimate activity, and would completely change the structure and orientation of VAT. The Commission is aware that the problem is urgent and that we need to find a solution. The UK and other member states understand why the Germans want a complete reverse charge, but have made it clear that that is not desirable. We are doing all that we can to ensure a speedy solution, but we must reach the right agreement with the Commission and, after discussions, we must be able to deliver it.
	May I remind the House of the nature of the powers that are being sought? The provision allows only amendments necessary for the implementation of the reverse charge, and it cannot be used to increase anything else, including the amount of tax payable. As I have said, it is subject to affirmative resolution. It is not an open-ended powerit is necessary purely for the implementation of the reverse chargeso it will lapse three years after Budget 2006. The Conservative Government introduced a similar power in 1993, but it lacked a sunset clause. I believe, however, that a time limit is necessary to ensure that we tackle the issue properly.
	I have dealt with the hon. Member for Rayleigh's points about the extent of MTIC fraud. The latest estimates for 2004-05 cover a range of figures, and 1.9 billion is at the top end. However, that represents a 30 per cent. reduction in MTIC fraud since 2001-02 as a result of the Government's strategy. We have to wait for the pre-Budget report, even in subsequent years, because we require data from European Union member states on the nature of such fraud, which take five or six months to be processed, hence the PBR is an appropriate point for an update.

Mark Francois: I thank the right hon. Lady for her explanation of the timings. She said that the figures cover a range, and that we will be given an updated estimate in the autumn 2006 PBR. Given her knowledge of HMRC, does she think that by that stage the figure will rise above 1.9 billion, or will it fall below it?

Dawn Primarolo: I am not in a position to make such a forecast, but the hon. Gentleman will accept that the purpose of the reverse charge is to disrupt the fraudsters. VAT registration and repayment are subject to challenge by HMRC. It will be difficult to assess the strategy that is running in parallelplan B, as the hon. Gentleman put itbecause we hope that HMRC will not need to make those challenges in the first place. People may try to defraud, but our intention is that they should not be successful.
	The hon. Member for Falmouth and Camborne asked about resources. I refer her to column 1090W of the  Official Report of 17 May, where I gave the full list to her hon. Friend the Member for Kingston and Surbiton (Mr. Davey), showing the extra resources and the work that is being undertaken by HMRC. I also gave the figures in Committee. Hon. Members should be cautious about believing what is written in the newspapers.
	On the question about VAT registrationwhether the transaction is fictitious or real and how the Government are dealing with itthe answer is that it can be fictitious, as is increasingly the case, or real. The real is dealt with in the Bill by the stamping of goods, tracking and record keeping, which is the subject of other clauses. That will be effective where there is fraud in the chain, as opposed to the whole chain being fraudulent.
	There is the fictitious as well, and I shall give two examples. In August 2005 four people were found guilty of carousel fraud resulting in an estimated loss of 40 million in VAT. They used fictitious companies and false invoices, with the proceeds being sent to a Hong Kong bank account. They received sentences of 22 years. In December 2005 jail sentences totalling eight years were handed down to two men involved in a 58 million fraud. The fraud involved mobile phones purchased from fictitious companies and sold to other mobile phone brokers. The phones never found their way into the legitimate market. It was a perpetual fraud, and the reverse charge is specifically directed at that aspect of carousel fraud. The hon. Member for South-West Hertfordshire is right that we need to look carefully at whether that might mutate into other high value goods.
	Part of the discussion with the Commission is about what measures will be available to member states to counter such fraud. We need a careful balance so that there is not a reverse charge on all goods. Intelligence and an understanding of how MTIC frauds are perpetrated are needed. There will not be a general tightening of VAT registration. The Department is undertaking rigorous checks at the point of registration where it seems that something is not quite as it should bemissing information or a company that has been dormant for a long time suddenly submitting a high claim on VAT or seeking to become active again. Bogus businesses must be prevented from entering the VAT system, so the Department is doing its best to target those checks. If there was a general holding up of VAT registration, the numbers that I gave would have been considerably higher.
	The Department is approaching, sensibly and proportionately, a serious problem in the tax system not just for the UK, but for other member states where this type of fraud can be committed. I hope the House will agree the amendments today and that I can report soon on the progress of negotiations on the reverse charge and the start date of its operation.
	 Amendment agreed to.
	 Amendments made: No. 19, page 22, line 40, at end insert
	'(2A) In section 65 of VATA 1994 (inaccuracies in EC sales statements)
	(a) at the end insert
	(7) This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement., and
	(b) in consequence of the amendment made by paragraph (a) the heading becomes Inaccuracies in EC sales statements or in statements relating to section 55A.
	(2B) In section 66 of VATA 1994 (failure to submit EC sales statements)
	(a) at the end insert
	(10) This section applies in relation to a statement which is required to be submitted to the Commissioners in accordance with regulations under paragraph 2(3A) of Schedule 11 as it applies in relation to an EC sales statement., and
	(b) in consequence of the amendment made by paragraph (a) the heading becomes Failure to submit EC sales statement or statement relating to section 55A.
	(2C) In section 69 of VATA 1994 (breaches of regulatory provisions), in subsection (1) (failure to comply with a requirement imposed under provisions mentioned in the paragraphs in that subsection), after paragraph (b) insert
	(ba) paragraph 2(3B) of Schedule 11; or.'.
	No. 20, page 22, line 44, at end insert
	'(3A) In Schedule 11 to VATA 1994 (administration, collection and enforcement), in paragraph 2 (accounting for VAT and payment of VAT), after sub-paragraph (3) insert
	(3A) Regulations under this paragraph may require the submission to the Commissioners by taxable persons, at such times and intervals, in such cases and in such form and manner as may be
	(a) specified in the regulations, or
	(b) determined by the Commissioners in accordance with powers conferred by the regulations,
	of statements containing such particulars of supplies to which section 55A(6) applies in which the taxable persons are concerned, and of the persons concerned in those supplies, as may be prescribed.
	(3B) Regulations under this paragraph may make provision, in relation to the first occasion on which a person makes a supply of goods to which section 55A(6) applies, for requiring the person to give to the Commissioners such notification of the supply at such time and in such form and manner as may be specified in the regulations..' [Dawn Primarolo.]
	No. 121, page 23, line 3, at end insert
	'But no order may be made under this subsection on or after 22nd March 2009.'. [Mr. Francois.]

Schedule 1
	  
	Group relief where surrendering company not resident in UK

Mark Hoban: I beg to move amendment No. 122, page 155, line 21, leave out from second 'the' to end of line 22 and insert 'earlier of
	(a) two years after the end of the accounting period; or
	(b) the deadline for filing corporate tax returns in the EEA territory concerned.'.

Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 15, page 155, line 21, leave out
	'immediately after the end of the current period'
	and insert
	'when the claim for group relief was made'.

Mark Hoban: Both amendments seek to amend the deadline by which group relief claims can be made in regard to losses made in other European economic area countries where the group relief payments are to offset profits incurred in the UK.
	The background to schedule 1 is a case involving Marks and Spencer, which sought to use various provisions of European treaties to enable losses incurred in other EEA territories to be offset against profits in the UK. The European Court of Justice found in favour of Marks and Spencer, albeit with strict limitations on the circumstances in which that relief could be claimed. There were several issues on which further guidance was needed, including the timing of making a claim, which is the subject of both amendments.
	When we discussed these matters in Committee, the Government approached the task of implementing the ECJ's judgment and a subsequent judgment by Mr. Justice Park, who was asked to rule on specific elements of the ECJ's judgment, including the timing of the claim, as restrictively as possible. They sought to narrow the circumstances in which claims could be made, whereas one of the arguments that I made on behalf of the Opposition concerned effectiveness.
	In Mr. Justice Park's later judgment on the case, he commented:
	A principle that runs through the whole of community law and has been enunciated by the ECJ in numerous cases is the principle of effectiveness: procedures in Member States must not render practically impossible or excessively difficult the exercise of rights conferred by Community Law.
	That is the principle of effectiveness, which I want to explore.
	The ECJ conferred upon UK companies the right to claim group relief in certain circumstances on losses incurred by subsidiaries in other EEA states. That is enshrined in schedule 1, but we need to consider whether the procedures set out there meet the terms of Mr. Justice Park's judgmentwhether they
	render practically impossible or excessively difficult the exercise of rights conferred by Community Law.
	I would argue that the time of the claim does make it practically impossible or excessively difficult to exercise the rights.
	We should remember that UK companies claiming group relief on UK losses have up until two years after the end of the accounting period in which those losses are incurred to make a claim. One might ask why they need two years. I suspect that there is no scientific reason for that, but it enables groups to go through the necessary steps. It enables them to draw up the accounts of subsidiaries and determine the scale of any losses incurred. It enables them to revise accounting estimates, and to assess the write-down in the value of assets, such as stock and debtors; and it allows the parent company to calculate the extent to which losses can be carried back against profits made in earlier years. The auditors can audit the accounts, and any adjustments between accounting and taxable profits or losses can be made. Companies need to go through a drawn-out process to assess such profits, to ensure that the auditors have signed off such profits and to calculate taxes and profits properly.
	I have a degree of experience. I have worked as an auditor and with companies in preparing their accounts, so I understand why the exercise is not straightforward or quick. My problem with the way in which the Government have introduced the Marks and Spencer judgment in schedule 1 is that without a gap between the year-end and the filing of the claim it would be virtually impossible for any business to submit a robust claim that would withstand scrutiny from Her Majesty's Revenue and Customs. I hope that the Treasury will acknowledge that the process of making a group relief claim is not straightforward.
	The Marks and Spencer judgment, which involves a company making a group relief claim in relation to losses incurred in another EEA country, adds a further layer of complexity. Where there is any prospect of losses incurred in EEA territory being carried forward against profits, the losses cannot be claimed, so a business will have to have made decisions about the future of that loss-making companyit may have had to close it during the course of the year, or it may plan to close it down in the next accounting period.
	Where there is any prospect of such losses being offset against future profits, the losses cannot be claimed through group relief against the profits of a UK company. More time will be required for businesses to make those claims, a more thorough investigation will be required and the process will be longer. One cannot simply press a button in an overseas territory at the end of the financial year and produce perfectly formed accounts and a group relief claim.

Rob Marris: The hon. Gentleman is the accountant, not me, but he may have misread the provision that he seeks to amend. He has referred to distinguishing between a year-end point and the time for filing a claim for that year-end. Amendment No. 122 refers to the filing of the claim part of the process, whereas I read paragraph 7(4) as dealing with the end of the current period, when the picture is takenas he has said, the figures are put together afterwards through a long process. By my reading of the provisionI may be wronghe is confusing apples and oranges.

Mark Hoban: We debated that point in Standing Committee, where I felt that the Government shared my interpretation of when the claim would be made, so it would be welcome if the Economic Secretary were to clarify the position. The message that I have received in talking to advisers in the field is that the timing of the claim is so tight that it renders impossible the making of a group relief claim. A number of people involved in the area are concerned that the time for making a claim is so tight that it renders a group relief claim practically impossible. The consensus in the sector is widespread, but if the Economic Secretary were to reassure the accountancy profession and business, that would be welcome. The situation is not clear at the moment in the eyes of companies and their tax advisers, which is one reason why the amendment was tabled today.
	In his judgment, Mr. Justice Park considered the timing of the claim and examined various possibilities. It is important that companies can make such claims and that the right conferred upon them by the ECJ judgment is not rendered impossible to exercise in practice, which is why we have re-introduced the amendment on Report. I was concerned that the answer given by the Financial Secretary in Committee did not address the issue properly, and I want to use the debate on Report to clarify the matter for the sake of those who must implement the provision.

Edward Balls: I hope that I can provide the reassurance sought by the hon. Member for Fareham (Mr. Hoban) and those whom he has consulted in recent weeks.
	I have re-read the  Hansard of the debate in Committee, where we had an interesting and wide-ranging discussion about the role of the ECJ and European decision making in UK tax law and considered the almost philosophical issues around tax policy. However, the hon. Gentleman has raised some particular points, which I shall address in a particular way.
	As the hon. Gentleman has said, clause 27 and schedule 1 provide for a small extension to the group loss relief rules for companies. That extension allows UK groups to claim corporation tax relief for foreign losses in very limited circumstances. Existing group relief rules for UK losses, including the timing period, which business is keen to retain, are unaffected by the proposed legislation. We are introducing this small extension to group relief following last December's judgment of the ECJ in the case of Marks and Spencer plc  v. Halsey, which set the conditions under which group relief should be extended to foreign losses. Those conditions are very restrictive, which was the intention. Indeed, the way in which members of the European judiciary reflected legal opinions made it clear that the conditions are to be applied in extremely restricted circumstances.
	Amendments Nos. 15 and 122 go beyond the judgment and relax one of the conditions under which extended group relief is available. The condition is that to be eligible for relief in the UK, there must be no possibility of relieving a loss in a future period in another state. The amendments would change the date by reference to which companies determine whether that possibility exists. The reference date is currently immediately after the end of the loss period, but amendment No. 15 would change that to the date on which the group relief claim is made by a UK company. Amendment No. 122 would change the reference date to the earlier of two years after the end of the accounting period or the deadline for filing corporate tax returns of the foreign loss-making company, whichever is earlier.
	On amendment No. 15, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) has said, there is no logic in tying the test of possibility of relief to the rules that apply in respect of claims, because the concepts are entirely separate. The claims rules apply to the claimant company, while the possibility of relief rule applies to the losses of the surrendering company, and there is no logic in trying to create an entirely forced link between the two. We are talking about the definition of the loss period and the point at which the decision is made; we are not talking about the timing of the claim. The claimant company will still have at least two years to claim relief, which exactly mirrors the current relief rules for UK group relief. The difference is that at the time of the claim, the claimant company must look back to the date immediately after the loss period to see whether there is any possibility of relief at that time. As I have said, we are discussing the loss period, not the claim period.

Mark Hoban: Does the Economic Secretary require the loss-making company fully to assess the quantity of its losses immediately after the end of the accounting period?

Edward Balls: As I have said, the company has a two-year period to make a claim. The issue is the date at which the losses from the foreign company are judged to be unrelievable in the foreign tax jurisdiction. Once that date is decided, there are two years in which to make the claim. We are in danger of confusing two different conceptsthe two-year claim period and the loss period, which relates to the tax year when the decision on unrelievability was made. There will still be two years for that assessment to be made and for the relief to be claimed back in the UK tax jurisdiction and against UK profits. The idea that an immediate assessment calculation will subsequently have to be delivered to the Revenue at a particular point in time is not in line with what we are seeking to do. The claimant company will have at least two years to claim relief, mirroring current rules for UK group relief. As I said, the difference is that at the time of the claim the claimant company must look back to the date immediately after the loss period to see whether there is any possibility of relief at that time. It is true that Mr. Justice Park decided in his High Court ruling that the relevant time was the date on which a claim was made by the UK-resident company. However, that is not a settled point; it is still subject to appeal. His judgment also considers past claims to group relief, whereby the current legislation sets out the rules that are to apply to claim periods after 1 April 2006.
	Amendment No. 15 would provide a fiscal and financial incentive to delay claims until the last possible minute. Moreover, since the ability to claim can depend on whether an inquiry is open, companies would have an incentive not to settle inquiries. Those factors would sit uneasily with the Government's compliance objectives and with businesses' oft-repeated requests for certainty.
	Amendment No. 122 would make the relief more generous than that in the Bill by effectively giving access to up to three years' worth of losses rather than one. That would go beyond the ECJ judgment. Moreover, it would substantially increase the extension's cost to the Exchequer, from the 50 million estimated in the Budget documentation to 150 million. That is not a concession that we seek to make, nor is it necessary given the distinction between the claim period and the loss period. The amendment could facilitate a form of loss shopping, with companies putting their losses into the state with the most generous filing deadline. It would also cause many practical problems for business and for Revenue and Customs, as filing dates vary from country to country.
	In short, both amendments would remove important protections in the Bill at substantial cost to the Exchequer. I agree with my hon. Friend the Member for Wolverhampton, South-West that the concerns of the hon. Member for Fareham are based on a confusion between two different concepts. I hope my remarks enable him to assure his friends in the industry that their concerns are not justified and to withdraw the amendments.

Mark Hoban: I am grateful to the Minister for putting on the record his clarification of the important point about the timing of the claim that people can make and its being in line with UK group relief rules.
	One outstanding issue remains. At the end of the accounting period, the overseas company must be aware of its current position and its ability to offset losses that it has incurred against profits of other group companies in the same territory, as well as whether there is the prospect of relieving those losses against future profits to be made. That is a difficult issue, because if there is any prospect whatsoever of profits being made in the next accounting periodfor example, if some trading is still taking placethe losses cannot be relieved. If, however, a business has taken the decision to close during the accounting period, at the accounting period end it will know that there is no future prospect of relieving those profits. That issue of how much knowledge a business must have at the end of an accounting period is problematic. It leads to a difficulty in applying the ECJ judgment. It is in line with the Government's strategy of applying the most restrictive interpretation of the ECJ judgment. I suspect that companies may wish to return to it in future.
	Given the Minister's confirmation of the date of the filing deadline, and notwithstanding my concerns about information that a business must have at the end of the accounting period to determine whether it can carry forward losses and whether they are available for relief elsewhere, I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.

Schedule 5
	  
	Entitlement to film tax relief

Amendment proposed: No. 98, page 171, line 40, leave out 'partly' and insert 'mainly'. [John Healey.]

Mr. Deputy Speaker: With this we will take Government amendments Nos. 21, 24, 25, 26, 22 and 23.

Theresa Villiers: I turn first to the Government amendments in this group on taxation of leasesamendments Nos. 21 to 26. Government amendments Nos. 24 to 26 provide some useful technical clarification of schedule 8, which introduces a completely new framework for the taxation of leases, in relation to the backdating of the provisions. The Opposition have no objection to those amendments being made.
	I particularly welcome amendments Nos. 21 to 23, since they are virtually identical to amendments which I tabled in Committee and which the Financial Secretary graciously said that he would look into. In three places, the Bill imposes a motivation test. The formulation usually adopted in anti-avoidance legislation asks whether the purpose, or one of the main purposes, of entering a relevant transaction is that of obtaining a tax advantage. By contrast, under schedule 8 it is sufficient if the Revenue can show that the circumstances of the case are such that it would not be unreasonable to conclude that the purpose of entering the transaction is to gain the tax advantage. Under the traditional formulation for motivation provisions, it is for the Revenue to prove its case in courtthat is, that obtaining the tax advantage was the purpose of entering the transaction. It would have to prove that on the balance of probabilities, according to the normal civil standard of proof. However, under the formulation chosen in schedule 8, the Revenue would no longer have to prove that tax avoidance was one of the motivationsit would have only to show that it was not unreasonable to reach that conclusion. That seems to allow for the possibility that the Revenue might succeed despite failing to show that the actual purpose was to obtain a tax advantage, if it could show that it was not unreasonable to conclude in the circumstances that that was the motivation. It would then be up to the taxpayer to show that the relevant tax inspector's decision was unreasonable in the circumstances. That alters the ordinary onus of proof and therefore gives rise to significant problems.
	I am grateful that the Financial Secretary has reviewed the matter and decided to remove the formulation that I mentioned and return to a more orthodox approach that requires the Revenue to prove that tax avoidance was the motivation. I hope that that change of approach by the Government will be reflected in future and that the not unreasonable in the circumstances formulation does not become the norm in tax law. That was one of the main anxieties raised with me by organisations such as the Law Society, which was concerned not only about the impact of this measure in terms of the taxation of leases but about the possibility of its becoming the standard form for drafting anti-avoidance provisions.
	I am positive about the Government's amendments to schedule 8, and I need only delay the House with a few remarks on the schedule. The Opposition still have serious reservations about the new framework for the taxation of leases. Although it is improved by the Government amendments, we are concerned that the abolition of tax incentives for leasing environmentally friendly equipment could harm the battle against climate change. The administrative costs of proposed new section 70Q(2)(d)of the Capital Allowances Act 2001 could be excessive, with lessees forced to establish the tax position of their immediate lessors and superior lessors; and, if they are overseas companies, their theoretical position in UK tax law, had they been subject to UK taxes. That could be a complex process and is not one that is required by the needs of the Revenue.
	There is a danger that the new provisions on the taxation of leases could interact negatively with the tonnage tax regime. Overall, we are concerned about the considerable complexity of the new rules in schedule 8. We are worried about the impact that the changes could have on the leasing industry, which plays an enormously important role in UK business investment and fixed capital formation. The Finance and Leasing Association has reported that its members provided the finance in about a quarter of all fixed capital investment in the UK in 2004, involving some 93 billion in new business.
	The outgoing leasing rules have proved attractive to foreign direct investors, so their loss might be expected to remove an important incentive to bring business to the UK. We also believe that the shift of capital allowances from lessor to lessee, which is at the heart of schedule 8, will push up costs for the public sector. The NHS in particular has benefited in recent years from reduced costs in leasing equipment, because it can pass on to lessors the tax allowances on those leases which, as a non-taxpayer, it cannot use itself.
	We hope that the Government will keep the new framework for the taxation regime for long-funding leases under review and monitor its impact on the three areas that I have outlined, namely business investment, the public sector and overseas investment in the UK. We also hope that they will consider seriously the options for simplification, and that they will continue to consult the market participants affected by these rules closely, because of the key role that the leasing industry plays in business investment, and hence in productivity in the economy.
	We acknowledge, however, that the Government have conducted a lengthy and detailed consultation with the industry on these matters, and that they have removed a number of the problems that initially arose from their draft proposals. So as well as graciously conceding an important point today, they have taken steps to remove several difficulties that were present in the earlier drafts.
	My comments on Government amendment No. 98 will be even more brief. The provision relates to schedule 5 and the Government's new framework for film tax, and it seems to provide a sensible, albeit minor, clarification of the provisions. I shall therefore add only a few general remarks about the provisions that the Government are seeking to amend today. There is of course a degree of consensus on the film industry. Members on both sides of the House recognise the importance of making the UK a competitive and attractive place in which to make films, because of the commercial and cultural importance of the film industry, and because it is a highly mobile industry and we are competing with other jurisdictions providing incentives for film makers.
	We all agree that the old section 42 and section 48 reliefs have been abused and that they have to go because they are not providing sufficient value for money for the taxpayer. If we are going to have film tax reliefs, it make sense to focus them on the people who actually make films, as the Bill attempts to do, rather than on those who merely wish to reduce their tax billthe people whom the Chancellor memorably described as the grey middlemen.
	There are, however, a number of technical problems with the new structure, such as the blurred edges of the definition of a film production company, and the requirement that such a company be involved in pre-production as well as in principal photography and post-production. We are also concerned about the impact of the rules on TV companies, which cannot claim the reliefs but are still subject to the burdens of the framework, including problematic new accounting provisions.
	Above all, we very much hope that the pattern of continuing changes in the film tax regime that we have seen in recent years will not be repeated in the next Finance Bill. There have been recurring amendments to the regime, and the resulting instability creates serious difficulties for the industry, driving up costs and deterring film makers from coming to the UK. We urge the Government to do everything possible to provide a stable tax framework for the British film industry, and one that will provide much greater value for money for the taxpayer

Mr. Deputy Speaker: Order. May I remind the hon. Lady that these are minor technical and drafting amendments? Her remarks are going rather wide of those matters.

Theresa Villiers: Mr. Deputy Speaker, you have been very indulgent, and I am grateful to you and to the House for listening to my general remarks, which I was about to conclude.

Julia Goldsworthy: We consider these proposals to be minor technical amendments and we do not need to make any detailed comments on them at this stage.

John Healey: I welcome the fact that the hon. Member for Chipping Barnet (Mrs. Villiers) regards these amendments as useful. The provisions on leasing are narrow, and I do not propose to re-run the wider arguments that we went into in some detail in Committee. However, we will keep the new regime for leasing under close review. We will also consult the interests in the industry when monitoring the impact and operation of the new regime, just as we did during its design.
	Amendments Nos. 21 to 23 in particular reflect the points made by the hon. Lady in Committee, as well as the representations of the Law Society. We have had a chance to look at all those points more closely, and we have now tabled those amendments. I pay tribute to her work and to the representations of the Law Society on this matter.
	On amendment No. 98, the hon. Lady is right to say that there is a degree of consensus in the House on the need to support our film industry. It is an important, innovative, creative and economically successful industry. There is also consensus, however, that we need to safeguard against the practice of artificially inflating claims for relief or abusing the reliefs that we put in place. We believe that the Bill gets the balance right and that the new regime will work, but we will keep it under close scrutiny.
	Perhaps the House will be interested in a letter that Mr. Dan Glickman, the chairman of the Motion Picture Association of America, sent to the Chancellor last month, in which he said of the American industry:
	Our industry...finds the UK an enormously attractive location to produce our films for a variety of reasons. We are optimistic that the revised tax program will continue to make the UK an economically attractive location as well.
	 Amendment agreed to.

Clause 61
	  
	Computer equipment

Julia Goldsworthy: I beg to move amendment No. 126, page 46, line 29, leave out clause 61.
	Thank you, Mr. Deputy Speaker, for giving me the opportunity to raise this issue again. I believe that a fundamental problem still remains, and I welcome the opportunity to discuss it again on Report. However, rather than rehearse the arguments that were put in some detail in Committee, I shall ask a number of questions to which I hope the Paymaster General will be able to respond.
	Clause 61 seeks to remove the tax exemption that existed prior to the Budget, whereby employers who made computer equipment available for private use could do so tax-free, provided that the annual amount of the benefit in kind was 500 or less. Under the new regime, it remains the case that when the personal use of computer equipment is not significant, it does not need to be reported for tax purposes. What value does the Paymaster General attribute to not significant? How much below the previous limit of 500 per year will it be? How will the Government assess what does and does not count as significant?
	The Paymaster General made the point in Committee that the system was being abusedby being extended to include MP3 players, for example. There was a great deal of discussion at the time about what evidence the Government had used when they decided to withdraw the scheme rather than to tighten the definitions. The Paymaster General was kind enough to give examples of websites illustrating how the scheme could be abused, but can she quantify the scale of the abuse? Half a million people have benefited from the scheme, and many family members, as well as employees, now have access to a computer at home as a result. In particular, people found the kind of support provided through the scheme particularly helpful and reassuring.
	Companies involved in delivering the scheme were reporting an increase in uptake, and I do not believe that that was entirely due to abuses of the system. However, if the Paymaster General has evidence to show that that increase was due solely to such abuse, I would welcome that information. However, the Paymaster General rightly pointed out the perceived weakness of the schemethat it related only to employees, and that vulnerable and isolated groups not in employment could not benefit from it. The Home Computing Initiative Alliance recognised that, and I understand that it was in discussions with the Treasury and auditors about how best to resolve that issue when the scheme was withdrawn.
	While I recognise and applaud the new digital inclusion team announced in the Committee of the whole House, why were existing partners not deemed appropriate to fulfil the remit that was described? Will the entirety of the 370 million in savings generated by the scheme's abolition be transferred to the new team, or will some of that go back into the Treasury pot? That question was asked in the Committee of the whole House, but I do not see a response to it in  Hansard. Finally, will the Paymaster General provide us with an update on the digital inclusion team's work? On that note, I look forward to her response.

Mark Francois: It is a pleasure to follow the substantive contribution of the hon. Member for Falmouth and Camborne (Julia Goldsworthy). As the House may recall, we debated in some detail the Government's proposal to abolish the home computing initiative scheme, under clause 61, in the Committee of the whole House on 2 May. On that occasion, the official Opposition proposed the deletion of clause 61, which, as I recall, the Liberal Democrats supported. If the hon. Member for Falmouth and Camborne presses her amendment to a Division, we shall remain consistent with our original position, return the compliment and support her amendment.
	On 2 May, I spoke on this matter for some time and, I hope, in considerable detail, going back to the genesis of the scheme under section 45 of the Finance Act 1999. I therefore suspect that the House will welcome the fact that I do not propose to rehearse all that today. Instead, my aim this afternoon is to re-examine the Government proposal under five fairly succinct I hopeheadings. First, how was the decision to abolish HCI taken? Secondly, what was the subsequent impact? Thirdly, why was an alternative scheme not adopted? Fourthly, what is the tax position now, including such questions as: what now constitutes private use, which can be deemed for tax purposes to be not significant? Lastly, what really lay behind the decision all along?
	On the first question, there is little doubt in the industry or elsewhere that the decision to abolish the scheme was taken late in the run-up to the Budget. That is evidenced by several points. In the days immediately preceding the Budget, the HCI Alliance, which represents companies specialising in this field, was negotiating with the Treasury in good faith to see how the scheme could be modified, in order to save it from the allegations that elements of it were being abused. The HCI Alliance was therefore shocked when the scheme was abolished in the Budget on 22 March, while those negotiations were effectively still ongoing. They were not the only ones to be caught out. The Department of Trade and Industry, the scheme's departmental sponsor, was also taken unawares, not least as it was about to roll out the scheme to its own employees, and was promoting it on its departmental website on the day of abolition, stating:
	The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional driversreducing cost, increasing profitabilitythey can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development.
	The Department for Work and Pensions, one of the largest employers in government, was also about to roll out the scheme to its staff, and was also blind-sided by the Treasury.
	The announcement also drew criticism from the CBI and the TUC, both of which had actively promoted the scheme to their members. Brendan Barber, the general secretary of the TUC, protested:
	The Home Computing Initiative has helped thousands of low-paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste.
	Moreover, the matter received no prior formal public consultation and, as the Government's regulatory impact assessment pointed out, unusually, no small firms impact test was carried out in advance of the decision either. In short, it had all the hallmarks of a decision taken hurriedly in the final few days before the Budget announcement, as the printers were straining to print the final version of the Red Book.

Rob Marris: I thought that this was going to be succinct.

Mark Francois: The hon. Gentleman says from a sedentary position that he thought my comments were going to be succinct. I say gently to him, having heard him once or twice in Committee, that there is an element of the pot calling the kettle black about that.

Rob Marris: Can the hon. Gentleman cite where in Committee I spoke for more than two columns of  Hansard in any one speech or intervention?

Mr. Deputy Speaker: Order. I would prefer that we stuck to the proceedings before the House this afternoon.

Mark Francois: Thank you, Mr. Deputy Speaker. I shall gladly write to the hon. Gentleman on that matter, either one way or the other.
	As for the impact of the decision, take-up of the HCI scheme was just beginning to take off when the Treasury suddenly and unfortunately announced its abolition. Nearly half a million employees around the country had taken advantage of the scheme to help improve their computer literacy and that of their families, which was part of the point of the scheme. More than 1,000 organisations, including public, private and voluntary sector bodies had begun to use the scheme. More than 100 different NHS trusts and hospitals had done so, including King's College hospital and even the Sedgefield primary care trust, as had a wide variety of local authorities, a number of which were Labour-run. Many other organisations were also planning to adopt the scheme, including, as we have heard, two Departments.
	Unfortunately, even for organisations that had already signed up their employees, the benefits will now be time-limited, as once current HCI agreements expire they cannot be renewed on the same terms. That is confirmed by paragraph 71 of the regulatory impact assessment, which states:
	Changes to the exemptions for computers and mobile phones were announced in the Chancellor's Budget Statement on 22 March 2006 and will take effect from 6 April 2006. However, those people also participating in schemes based on the law as it applied prior to 6 April will not be affected until the period of their current agreement expires and they enter into a new agreement.
	Therefore, even those people's HCI schemes will run out when whatever agreement they happen to have signed over the past few years reaches its originally agreed termination date. If clause 61 remains in the Bill, they will not be allowed to renew on those terms.

David Taylor: Having worked in the computing industry for 30 years before coming to this place, I welcomed the initiative and the attempt to raise levels of computer literacy, as lack of such literacy has resulted, among other things, in unnecessary recruitment from abroad to fill jobs that UK citizens could do. However, does the hon. Gentleman acknowledge that any Government must act if they believe that a scheme has been abused, or that growing numbers of people are using it in a way not anticipated under the original terms and objectives?

Mark Francois: I thank the hon. Gentleman for his intervention. As he knows, I have quite a lot of time for him. At one level, what he says is correct, if the motive had genuinely been to address abuse. First, however, I do not believe that there was widespread abuse of the scheme, as I shall briefly explain. Secondly, as I hope I shall demonstrate, I believe that the motivation was not to combat abuse per se, and that the Government had other reasons. The issue of abuse has been used as a smokescreen, and I shall explain why. I take his point, but I do not believe that what he describes is what happened in this instance.
	The impact on employment has been estimated by the UK trade body Intellect at around 2,000 job losses. Since the announcement was made, a number of companies operating in the field, including Red PC, Encompass and Evesham Technologies have, sadly, announced redundancies as a result. The greatest overall effect, however, is on the people who will no longer be able to avail themselves of the scheme, many of whom are in modestly paid jobs. When we debated the matter in the Committee of the whole House, I read into the record a series of e-mails and web comments from people who feared that they would no longer be able to use the scheme. I will not go over that again, but in summary, the HCI Alliance estimated that 60 per cent. of the scheme's participants are in blue-collar industries and 75 per cent. pay the standard rate of tax or lower. Three quarters of the people who were using the scheme could hardly be described as rich by any measure. Moreover, the computer supplier Intel pointed out in a letter to me that 21,000 Tesco workers had taken up the scheme, and expressed the view that many of them would not have computers had they not been offered them under the scheme.
	Why was an alternative scheme not adopted? We debated that at some length on 2 May. If the Treasury was generally concerned about the degree of abuse to which it argued that the scheme was subjectand I accept that there was some abuse at the marginit should have been possible to amend the 2004 scheme guidelines to specify a positive list of products to which the scheme and the exemptions would apply in future, perhaps supplemented by a negative list of those to which they would definitely not apply. That would have been a way of tightening up the scheme in order to save it.
	There is a precedent. The Government in Sweden have operated a system similar to the HCI for some time, and similar concerns were expressed there about people seeking to exploit the tax advantages by purchasing equipment outside the original spirit of the rules. However, in 2004, rather than scrapping the scheme the Swedes simply tightened the rules on qualifying equipment. It deemed that only personal computers were allowed, with a maximum of one per employee. The monitor size was restricted to 30 in to avoid the alleged abuse by people using the scheme to buy large-scale plasma televisions. Peripherals and accessories were divided into two categories: those primarily used connected to a PC, such as keyboards and printerswhich were allowedand those whose primary use did not involve a PC, such as digital cameras and MP3 players, which were specifically not allowed.
	Even if the Treasury refused to accept the Swedish example wholesale, as we have argued before, restrictions of that kind would be relatively simple to introduce through modification of the guidelines. The Government simply cannot hide behind excuses such as the difficulty of defining qualifying equipment, because we have already given them an empirical example of that being done successfully elsewhere. Furthermore, that very option was included in the Government's own regulatory impact assessment, under the heading Refocus the Exemptions. The more tightly defined scheme, which was option 2 in the RIA, still offered considerable revenue savings to the Treasury, while also offering the prospect that the scheme could continue relatively intact. If option 2 had been used, the taxpayer would have saved money against the alleged abuse, while the schemestill relatively intactcould have achieved its objective of contributing positively to the spread of e-literacy among the population. The Government could have saved it if they had wanted to; their own regulatory impact assessment makes that clear.
	What is the tax position now? Here we see some clarification from the Paymaster General. If the Government are determined to press ahead with their decision, that leaves open the question of the tax position following the introduction of clause 61. Paragraph 22 of the RIA states
	If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to class 1A National Insurance contributions.
	On the day of our debate in the Committee of the whole House,  The Times said in a leading article
	Treasury officials have promised to take a practical view of how much private use should be regarded as significant. The most practical approach, when the issue is debated in the Commons today, would be to withdraw it. We are watching.
	I very much hope that it is still watching.
	Can the Paymaster General update us on the progress of the post facto consultation with interested parties? Paragraph 74 of the RIA implied that that work would be completed by Royal Assent. As Third Reading is due in just a few hours, and as, following scrutiny in the House of Lords, we might reasonably expect Royal Assent before the end of July, can the Paymaster General tell us whether a solid working definition has been achieved so that employees will know exactly where they stand in relation to taxwhich will be very important to themand employers will not have to endure a complicated compliance burden to try to stay on the right side of the law, as all Members of Parliament would expect them to do?
	What really lay behind the decision? The answer seems very clear: the Chancellor simply wanted the money. The Red Book reveals that the decision to scrap the HCI will raise some 300 million in revenue between 2006-07 and 2008-09. No doubt that preyed heavily on the Chancellor's mind in the run-up to the Budget, given that he is now pledged to borrow an incredible 175 billion over the next six years. Coming from a Chancellor who always likes to wax lyrical about making decisions for the long term, this smacks of short-term decision making of the worst kind. Indeed, we observed the irony during the most recent Treasury questions, on 15 June. The Chancellor himself was berating the Opposition for, in his opinion, not doing enough to encourage investment in computers.

David Taylor: Is it not the case that over a three-year period, 200 million represents about one sixtieth of 1 per cent. of a public expenditure total of some 1,200 billion? Is the hon. Gentleman really suggesting that what is, in that context, a trivial sum would provide the motivation for a decision of this kind?

Mark Francois: The hon. Gentleman must forgive me; I know that he is an accountant by training, but I would not call hundreds of millions of pounds trivial in any context. I remind him of what the Chancellor proudly told the  Daily Record in March 1999, when he was attempting to float the official version of what became the HCI. He said
	Britain can no longer afford to lag behind America. Inequality in computer learning today will mean inequality in earning power tomorrow.
	Perhaps the hon. Gentleman should take that point up with the Chancellor directly. Someone must tell him that his decisions should remain consistent at least for a few months.
	Is it any wonder that even Labour Members are beginning to doubt the Chancellor's judgment? That was evidenced in an excellent article in yesterday's edition of  The Daily Telegraph by Rachel Sylvester, entitled Twitchy Labour MPs look to ditch Brown along with Blair. As she explained,
	Even Mr. Brown's closest allies in the Commons are becoming frustrated with their preferred leader. Changing people who are set in their ways is very difficult according to one weary MP.
	Quite.
	This is clearly a decision made in haste by a Chancellor on the look-out for short-term revenue-raising measures. In fairness to the Paymaster General, it must be said that, as so often happens, the Chancellor has made a difficult decision and expected his junior Ministers to front for him. His decision will impede the spread of computer literacy in our country, not least among modestly paid employees and their families, at a time when, according to Hewlett Packard, our international competitors such as China and India are between them churning out more than 100,000 IT graduates a year.
	The bottom line is that the Government could have refocused the exemptions to protect revenue for the taxpayer, and still have saved the scheme. They had that option, but they did not follow it because they wanted every penny that they could squeeze. Nevertheless, I call on the Government one last time to reverse this erroneous decisionalthough, sadly, I believe I know the outcome even before I ask the question.

Dawn Primarolo: In Committee of the whole House, I made it clear that there were a number of reasons why it was the right time to remove the exemption. I shall briefly repeat each one.
	The home computer initiative has been used extensively by groups whom we would not generally expect to experience difficulty in accessing information technology. Twenty-five per cent. of participants in the scheme are higher rate taxpayers, more than twice the proportion among taxpayers as a whole. Furthermore, nearly a third of participants are employed in white-collar industries. In March, the Low Pay Commission published the findings of its review of benefits in kind, salary sacrifice schemes and the accommodation offset. It found that take-up rates were often low and that many part-time low-paid workers would gain no advantage from salary sacrifice schemes for home computers and other benefits in kind. The analysis shows that those who can afford to do so have the computers and those who cannot afford to do so, do not. The recommendation was, therefore, to refocusnot to amendthe scheme.

David Taylor: It may be that the benefit of the scheme was focused on the middle class, IT-literate, higher paid section of the population, but many people would have been happier had the savingssome 200 million over three yearsbeen refocused in a way that enabled access for older or less-well-off people in certain areas. It could have been done perhaps through the community education system, which has had some problems in recent times.

Dawn Primarolo: My hon. Friend is right and I will come to that point.
	The HMRC also had evidence that the tax exemption was being used beyond the scope of its original intention, not only in the equipment provided but in the marketing of the scheme, which implied that people could buy that equipment at prices offset against their salary sacrifice.

Julia Goldsworthy: Will the Paymaster General give way?

Dawn Primarolo: I shall come to the hon. Lady's points and, if necessary, give way then.
	The investment for the groups that my hon. Friend mentioned was specifically addressed in the digital review and the Low Pay Commission report. I shall come to those points when I have finished explaining why the scheme was not appropriate. It was the correct time for the Government to remove the exemption and better focus support on the groups of people in our community that my hon. Friend mentioned, so as to increase access to technology for the poorest, the unemployed, the elderly and the low paid. Salary sacrifice schemes cannot provide that access.
	During proceedings in the Committee of the whole House, I announced that we would establish a dedicated digital inclusion team. That team has now been set up by the Department for Communities and Local Government, and is working closely with the City of London Corporation. It will champion examples of excellence in using highly effective and efficient information and communication technology to tackle the key drivers of exclusion. It will also promote leadership and understanding and inform decisions.
	I also announced that the Government would change the aims and objectives of the digital strategy to focus on digital inclusion. The Treasury will collaborate closely with industry on meeting the goals of the digital strategy, building on the success of more than 6,000 UK online centresmore than half of which are located in the 2,000 most deprived wards in England. Some 90 per cent. of the population live within 5 km of one of those centres, and that is precisely the type of investment that is needed to reach those groups.
	It is stunning that every time the hon. Member for Falmouth and Camborne (Julia Goldsworthy) is asked about the Liberal Democrats' spending commitments, we are told that they have a commission and are thinking about it. Then she berates the Government for investment in making progress on tackling social exclusion

Julia Goldsworthy: Will the Paymaster General give way?

Dawn Primarolo: I will give way to the hon. Lady if she will tell me where she will get the 300 million for the unfocused support of those who already have access to the technology and how she plans to tackle the exclusion of everybody else.

Julia Goldsworthy: Is it right that all the money saved from the withdrawal of the scheme will be reinvested in digital inclusion for vulnerable groups?

Dawn Primarolo: I have told the hon. Lady the Government's plans for spending the money. She has a flipping cheekI shall rephrase that. It is somewhat audacious of the hon. Lady to suggest that I should forecast future Government spending when she is not even prepared to make a current commitment on expenditure by her party on anything, let alone in this area.
	I have made it clear that with the refocusing of the digital strategy, the setting up and use of the digital inclusion team and the discussions that we are having with industry, we are looking at how we can refocus support on targeted groups. I remind the hon. Member for Rayleigh (Mr. Francois) that if those people are low paid, unemployed or elderly, a salary sacrifice scheme will not help them, however it is amended. The point of the reports that the Government received was to demonstrate that the resources should now be directed at the groups I have mentioned.
	The final question was about the remaining arrangements for when computer equipment is provided by employers solely for work purposes and the definition of significant in relation to private use. The HMRC's interpretation of not significant is that
	where a computer is provided by an employer because it is necessary for an employee to have it available at home or in the office to carry out the duties of their employment, it is highly unlikely that any private use made of that equipment will be significant when compared to the business need.
	It is assumed that the business need would outweigh any consideration of private use. To put that point beyond doubt, the HMRCin consultation with the employershas drafted guidance with detailed explanations of the point, which is currently being scrutinised. Employers can still provide computers for business need.
	It is entirely appropriate that the Government should refocus the resources. There is no hidden agenda. The agenda is clear and it involves reaching out to those who are excluded from information technology and ensuring that the regime as provided is properly used. That is precisely what we have done.

Julia Goldsworthy: I shall be brief. Although the hon. Member for Rayleigh (Mr. Francois) may not approve, I am sure that many other Members will be grateful.
	The unfairness still stands. People who could have benefited from the home computer scheme will not be able to access it and, as has been said in previous debates and again today, many of those people are in blue-collar jobs and low-income households. Businesses have closed as a result of the end of the scheme, so what confidence can the Paymaster General expect businesses to have in the Government's proposals to extend digital access to vulnerable groups? Why would they support or invest in future schemes, given their experience of the home computer scheme?
	3.30 pm
	The right hon. Lady has not explained why the Government were not able to tighten the definition, when other countries were perfectly able to do so. For those reasons

Mark Francois: Will the hon. Lady give way?

Julia Goldsworthy: Of course I will give way to the hon. Gentleman, provided that he is succinct.

Mark Francois: I cannot give the hon. Lady an absolute guaranteethat is subject to the Chair.
	Having heard the Government's explanation of what they have decided to do, we would very much like to join the hon. Lady in the Lobby if she decides to press the amendment to a vote. Does she agree that as the Paymaster General said that draft guidelines had been prepared on the not significant issue, it would be helpful if the Government placed a copy of the guidelines in the Library as soon as possible?

Julia Goldsworthy: I very much agree with the hon. Gentleman's last point. I was hoping to intervene on the Paymaster General to ask her to place in the Library the evidence provided to her by HMRC that the scheme was being used beyond its scope.
	For the reasons I have outlined, I feel that the issue is still significant and I shall press the amendment to a vote.

Question put, That the amendment be made:
	 The House divided: Ayes 224, Noes 274.

Question accordingly negatived.

Schedule 6
	  
	Avoidance involving financial arrangements

Edward Balls: I beg to move amendment No. 99, page 181, line 2, at end insert
	'Repeal of rent factoring provisions
	A1 (1) Sections 43A to 43G of ICTA (rent factoring) shall cease to have effect.
	(2) The amendment made by this paragraph has effect in relation to transactions entered into on or after 6th June 2006.'.

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 16, 100, 17 and 101 to 106.

Edward Balls: These amendments cover two similar areas. They deal with changes to the legislation on reposthe name for agreements for the sale and repurchase of securitiesand introduce legislation on the factoring of income generally, replacing existing legislation on the factoring of rents from land. Both these areas involve anti-avoidance rules.
	Amendments Nos. 99 to 101 deal with factoring of income generally and are more substantial, so I will describe them first. The ideas behind the rules for structured finance arrangements are not new; they build on, extend and replace legislation introduced in 2000 called rent factoring. However, the structures that Her Majesty's Revenue and Customs has seen recently are new: they take rent factoring ideas and extend them to types of receipts other than rents.
	Before turning to the detail, it may be helpful to start by outlining why the amendments are being introduced at this stage of the Finance Bill cycle, rather than on Budget day. The context is that, earlier this year, HMRC became aware that a major corporation had entered into the new type of factoring scheme to avoid paying tax on significant amounts of income. At that stage, HMRC was not aware of the detailed mechanics of the scheme, so the Government were not in a position at Budget time to introduce properly targeted legislation. Work continued to ensure that the scheme was properly understood and then on developing a legislative solution.
	On 6 June, my right hon. Friend the Paymaster General announced to Parliament that the Government would introduce amendments to the Finance Bill on Report to ensure that the new type of factoring arrangement would be properly taxed, and that the legislation would have effect from 6 June. On that day, HMRC published draft legislation and a detailed explanatory statement on its website identifying the types of scheme that the legislation would affect. It also invited interested parties to attend a longer open day later in June, with HMRC and Treasury officials, with the object of clarifying the new rules and identifying any areas where they might need to be amended. As I said, this is, in essence, anti-avoidance legislation. The Government do not usually consult about anti-avoidance legislation.

Mark Hoban: Will the Minister explain to the House the principal differences between the draft legislation that was published on 6 June and the provisions in front of us today? What types of transactions were taken out?

Edward Balls: I was just coming on to explain how the consultation had affected the initial proposals and how consultation had helped us to make better tax policy.
	I was saying that, normally, one would not consult on this kind of anti-avoidance legislation, but because we are talking about a difficult area, we thought that it would be helpful for there to be a period of consultation and discussion about the detailas long as it was always clear that the legislation would have effect from the date that it was announced, 6 June, and provided that the House was content for these amendments to be introduced on Report. As I said, we held an open day discussion on 20 June, which was attended by about 30 representatives of business and the advisory professions, to go through the legislation and, in particular, to consider whether the exclusions that had originally been built in were sufficient. Those exclusions were to make sure that we did not inadvertently capture appropriate behaviour as we tried to deal with the particular form of tax avoidance relating to this complex way of providing loan finance.
	The consultation process has been constructive and beneficial in identifying areas where changes to the original proposals were needed in order to exclude cases that could be inadvertently caught. The process has been welcomed by business as a way of striking the right balance between protecting tax revenues and making sure that we get legislation right. The main exclusions are for transactions that are already taxed in the way that the amendments propose. That includes finance leases and other similar arrangements such as repos, stock lending and some types of Islamic finance. To put the point beyond doubt, ordinary loans are also excluded. In essence, the new legislation for structured finance arrangements will bring other types of financing arrangements into line with the new finance leasing rules, and so remove what would otherwise have been an anomaly from the tax system.
	I want to confirm in particular that, following discussions, the finance leasing industry is content with the exclusions in the amendments. In response to the hon. Member for Fareham (Mr. Hoban), I should say that it was around those issues of finance leasing that most of the detailed changes to the original 6 June announcement were made. Following those consultations with the industry, we understand that it is content that the exclusions in the amendments provide the right outcome, particularly in relation to any overlap between the leasing rules and the structured finance rules. We think that these measures are a proportionate response to complex arrangements. Had we not acted, several hundreds of millions of pounds of tax would have been at risk. The provisions do not penalise, but put all finance arrangements on a level playing field so that a company's decision on how to finance itself is not driven by tax considerations, but by commercial ones.
	Amendments Nos. 16 and 17 are changes to the tax treatment of sale and repurchaseor, as they are commonly known, repotransactions. These amendments are the Government's prompt reaction to a recent adverse decision of the special commissionersthe first instance tax tribunalin a case where there was what is known as a three-legged repo. Clearly, in this case, there was no question of consultation because we were responding to that decision.
	Repos are used widely in the financial markets as a form of a secured loan. They typically involve one party agreeing to sell securities to another, with a related agreement to buy back the securities at an agreed future date at a price agreed at the outset. Ordinary repos involve only two parties: the original holder and the interim holder. The special commissioners held that the legislation for taxing repos did not work properly in a three-legged repo situation and upheld a company's claim to a deduction when, overall, there was no net loss to the group of companies involved. It is very likely that HMRC will appeal that decision, but it opens up the possibility of companies trying to enter into similar schemes in the hope that the special commissioners' decision will be upheld. The possible cost of that could run into hundreds of millions of pounds.
	The amendments on repos will ensure that such a scheme will not succeed in future, whatever the outcome of the appeal. The changes will not have any wider effect on genuine commercial repo transactions. This is another example of us acting quickly and fairly, but properly, to deal with tax avoidance without damaging legitimate transactions. I hope that I have assured the hon. Member for Fareham that the consultation has been well handled, and I commend the amendments to the House.

Mark Hoban: I thank the Minister for his explanation of these complex and technical changes. He was right to suggest that the consultation process has been thorough and effective. Given that many of the issues on which we have had conflict during the passage of the Bill have been areas on which there has not been proper consultation, that is something on which we can agree. The Minister has taken on board fully the remarks made by tax advisers. On that point, may I put on record my thanks to the advisers who have helped us throughout the passage of the Bill? PricewaterhouseCoopers has helped us to tackle some of the complexities of the Bill, but it was not alone in providing us with guidance, support, suggestions and help.
	The Minister is right to clamp down on the problem. I understand that taxpayers are trying to obtain tax relief on both the interest and the principal. The example given in the explanatory notes demonstrates the extent to which people will structure such transactions simply to acquire tax relief on them. The amendments are thus valid. My discussions have shown that the industry is broadly content with them. Things such as finance leases were in the original scope of the draft legislation and the fact that they have been taken out is welcome. There is provision in the legislation that when other genuine commercial transactions could be caught by the changes, there is a mechanism for ensuring that they will fall outside the scope of the anti-avoidance provisions.
	May I ask several questions about repos? The Minister was right to point out that such transactions are ordinarily straightforward. However, the transactions that came to the Government's attention through the case considered by the special commissioners involved three parties. The original owner sold securities to an interim purchaser, who sold them to someone else, who then sold them back to the original ownerthat is quite a complex loop. When considering such transactions, did the Treasury or HMRC do any research to determine whether any valid commercial transactions involved three parties in a tri-party repo arrangement?
	I understand that there are frequently occasions on which a third party will act as an agent between the two parties to a repo. Will the Minister confirm whether the use of agents will lead to transactions being classified as tri-party repos and thus fall under the terms of the amendments? Clarification on that would be useful because agents are widely used when such transactions are carried out.
	The third issue is assignment and novation of the arrangements. There may be occasions when, for entirely commercial reasons, existing repos are assigned and novated to another partyfor example, as part of a corporate reorganisation or a transfer or takeover of business. In those circumstances, since the assignee would not be the party to whom the securities were originally sold, one would not expect that they would be eligible for tax relief in respect of any deemed manufactured dividend or interest. There is some concern that the new rules might capture those transactions inadvertently.
	I should be grateful if the Minister responded to those three concerns: has there been any research into the valid commercial use of tri-party repos; will it capture deals where an agent has facilitated the repo; and what will happen where there are assignments and novations as part of an ordinary commercial transaction or corporate reorganisation? Will the Minister clarify those three matters?

Edward Balls: I am happy to clarify those three issues. Having spent some time reflecting on these matters in recent weeks, it is clear that it is a highly complex area and that changes to legislation in respect of market developments over a number of years have led to very considerable complexity. In future, we will look to finding ways to make the legislation more user friendly, without at the same time losing any of the important protections that have been introduced in recent years and in the amendments today.
	On the first point, I can confirm that protection of revenue is being put in place without affecting normal transactions in any way. We have been careful to ensure that standard repo contracts will not be affected. We are talking about a particularly contrived form of three-party reponot the sort of transactions that one stumbles into inadvertently. They exist only where taxpayers are attempting to avoid paying tax by using artificial or contrived arrangements. Standard commercial or two-party repos will not be inadvertently affected by the changes.
	The second question was about agency cases. I can confirm that they will not be caught by the changes, as we looked into that particular problem.
	On the third question about novations, I can confirm that our understanding is that they will not be caught in that way. Following the special commissioner's decision, we decided to act quickly. We do not want to open up a wider problem. As a result of the commissioners decision, the right thing to do was to act in a speedy manner and hopefully in a well thought out manner. I can assure the hon. Gentleman on all of his three points. More generally, because this is a complex area, we will keep it under review and if we can take further action in future Finance Bills to bring greater simplicity while at the same time keeping proper revenue protections in place, we shall certainly do so. For now, I urge hon. Members to support the amendments, which are necessary to protect the taxpayer from the potential loss of hundreds of millions of pounds. They will also help to ensure that the vast majority of people who go about their proper business in the financial markets will not be affected by the problem.
	 Amendment agreed to.
	 Amendments made: No. 16, page 185, line 8, at end insert
	'Multiple holders of securities subject to sale and repurchase agreement: no relief for deemed manufactured payments
	3A (1) Section 737A of ICTA (sale and repurchase of securities: deemed manufactured payments) is amended as follows.
	(2) In subsection (5) (application of Schedule 23A and dividend manufacturing regulations), after apply insert , subject to subsection (5A) below,.
	(3) After that subsection insert
	(5A) If the relevant person is not the person to whom the transferor agreed to sell the securities, the relevant person is not entitled, by virtue of anything in Schedule 23A or any provision of dividend manufacturing regulations, or otherwise
	(a) to any deduction in computing profits or gains for the purposes of income tax or corporation tax, or
	(b) to any deduction against total income or total profits,
	by virtue of subsection (5) above.
	Where the relevant person is a company, an amount may not be surrendered by way of group relief if a deduction in respect of it is prohibited by this subsection..
	(4) In subsection (6) (interpretation), for
	(a) subsection (5) above, and
	(b) that subsection,
	substitute this section.
	(5) The amendments made by this paragraph have effect in relation to securities if
	(a) the agreement to sell them was made on or after 27th June 2006, or
	(b) a person other than the person to whom the transferor agreed to sell them became the relevant person in consequence of any other agreement made on or after that date.'.
	No. 100, page 185, line, at end insert
	'Structured finance arrangements: factoring of income receipts etc
	3B (1) After section 774 of ICTA (transactions between dealing company and associated company) insert
	 Factoring of income receipts etc
	774A Meaning of structured finance arrangement for purposes of s.774B
	(1) For the purposes of section 774B an arrangement is a structured finance arrangement in relation to a person (the borrower) if the following condition is met in relation to the borrower.
	(2) The condition is that
	(a) under the arrangement the borrower receives from another person (the lender) any money or other asset (the advance) in any period,
	(b) in accordance with generally accepted accounting practice the accounts of the borrower for that period record a financial liability in respect of the advance,
	(c) the borrower, or a person connected with the borrower, makes a disposal of an asset (the security) under the arrangement to or for the benefit of the lender or a person connected with the lender,
	(d) the lender, or a person connected with the lender, is entitled under the arrangement to payments in respect of the security, and
	(e) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower.
	(3) For the purposes of this section, in any case where the borrower is a partnership, references to the accounts of the borrower include the accounts of any member of the partnership.
	(4) For the purposes of this section and section 774B
	(a) references to a person connected with the borrower do not include the lender, and
	(b) references to a person connected with the lender do not include the borrower.
	774B Disregard of intended effects of arrangement involving disposals of assets
	(1) If
	(a) an arrangement is a structured finance arrangement in relation to a person (the borrower), and
	(b) the arrangement would (disregarding this section) have had the relevant effect (see subsections (2) and (3)),
	the arrangement is not to have that effect.
	(2) If the borrower is a person other than a partnership, the relevant effect is that
	(a) an amount of income on which the borrower, or a person connected with the borrower, would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of the borrower, or of a person connected with the borrower, is not so brought into account, or
	(c) the borrower, or a person connected with the borrower, becomes entitled to an income deduction.
	(3) If the borrower is a partnership, the relevant effect is that
	(a) an amount of income on which a member of the partnership would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of a member of the partnership is not so brought into account, or
	(c) a member of the partnership becomes entitled to an income deduction.
	(4) If
	(a) a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the person record an amount as a finance charge in respect of the advance,
	that person may treat the amount for income tax purposes as interest payable on a loan.
	(5) If a person in relation to whom the structured finance arrangement would otherwise have had the relevant effect is a company within the charge to corporation tax
	(a) the advance is to be treated, in relation to the company, for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 as a money debt owed by the company,
	(b) the arrangement is to be treated, in relation to the company, for the purposes of that Chapter as a loan relationship of the company (as a debtor relationship), and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the company as a finance charge in respect of the advance is to be treated as interest payable under that relationship.
	(6) For the purposes of this section, in any case where the borrower is a partnership,
	(a) references to accounts include the accounts of the partnership, and
	(b) any deemed interest is treated as payable by the partnership (whether or not the finance charge is recorded in the accounts of the partnership).
	(7) For the purpose of determining when any deemed interest in respect of the advance is paid
	(a) the payments mentioned in section 774A(2)(d) are treated as consisting of amounts for repaying the advance and amounts (the interest elements) in respect of interest on the advance, and
	(b) the interest elements of those payments are treated as paid when those payments are paid,
	and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.
	(8) In this section deemed interest means any amount which is treated as interest as a result of subsection (4) or (5).
	(9) This section is subject to the exceptions contained in section 774E.
	774C Meaning of structured finance arrangement for purposes of s.774D
	(1) For the purposes of section 774D an arrangement is a structured finance arrangement in relation to a partnership (the borrower partnership) if condition A or B is met in relation to the borrower partnership.
	(2) Condition A is that
	(a) a person (the transferor partner) disposes of an asset (the security) under the arrangement to the borrower partnership,
	(b) the transferor partner is a member of the borrower partnership immediately after the disposal (whether or not a member immediately before the disposal),
	(c) under the arrangement the borrower partnership receives from another person (the lender) any money or other asset (the advance) in any period,
	(d) in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,
	(e) there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender (see subsection (6)),
	(f) under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and
	(g) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.
	(3) For the purposes of condition A, references to the accounts of the borrower partnership include the accounts of the transferor partner.
	(4) Condition B is that
	(a) the borrower partnership holds an asset (the security) as a partnership asset at any time before the arrangement is made,
	(b) under the arrangement the borrower partnership receives from another person (the lender) any money or other asset (the advance) in any period,
	(c) in accordance with generally accepted accounting practice the accounts of the borrower partnership for that period record a financial liability in respect of the advance,
	(d) there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender,
	(e) under the arrangement the share of the lender or person connected with the lender in the profits of the borrower partnership is determined by reference (wholly or partly) to payments in respect of the security, and
	(f) in accordance with generally accepted accounting practice those payments reduce the amount of the financial liability in respect of the advance recorded in the accounts of the borrower partnership.
	(5) For the purposes of condition B, references to the accounts of the borrower partnership include the accounts of any person who is a member of the partnership immediately before the arrangement is made.
	(6) For the purposes of this section and section 774D there is a relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender if directly or indirectly in consequence of, or otherwise in connection with, the arrangement
	(a) the lender, or a person connected with the lender, becomes a member of the borrower partnership at any time, or
	(b) there is at any time a change in the share of a member of the borrower partnership in the profits of the borrower partnership in a case where that member is the lender or a person connected with the lender.
	(7) For the purposes of subsection (6)(b) the reference to a person connected with the lender includes a person who at any time becomes connected with the lender directly or indirectly in consequence of, or otherwise in connection with, the arrangement.
	774D Disregard of intended effects of arrangement involving change in relation to a partnership
	(1) This section applies if
	(a) an arrangement is a structured finance arrangement in relation to a partnership (the borrower partnership), and
	(b) any relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender would (disregarding this section) have had the following effect.
	(2) The effect is that
	(a) an amount of income on which a relevant member of the borrower partnership would otherwise have been charged to tax is not so charged,
	(b) an amount which would otherwise have been brought into account in calculating for tax purposes any income of a relevant member of the borrower partnership is not so brought into account, or
	(c) a relevant member of the borrower partnership becomes entitled to an income deduction.
	(3) In this section relevant member of the borrower partnership means
	(a) in any case where condition A in section 774C is met in relation to the arrangement, the transferor partner, and
	(b) in any case where condition B in that section is met in relation to the arrangement, any person other than the lender who is a member of the borrower partnership immediately before the time at which the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender occurs.
	(4) Part 9 of ITTOIA 2005 and section 114 above are to have effect in relation to any relevant member of the borrower partnership as if the relevant change in relation to the membership of the borrower partnership involving the lender or a person connected with the lender had not occurred.
	Accordingly, the structured finance arrangement is not to have the effect mentioned in subsection (2).
	(5) The following provisions of this section confer relief from tax the availability of which depends on which of the conditions in section 774C is met in relation to the arrangement.
	(6) In any case where condition A in section 774C is met, if
	(a) the transferor partner is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,
	the transferor partner may treat the amount for income tax purposes as interest payable by the transferor partner on a loan.
	(7) In any case where condition A in that section is met, if the transferor partner is a company within the charge to corporation tax
	(a) the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by the borrower partnership,
	(b) the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the company under that transaction.
	(8) For the purposes of subsections (6) and (7), references to the accounts of the borrower partnership include the accounts of the transferor partner.
	(9) In any case where condition B in section 774C is met, if
	(a) a relevant member of the borrower partnership is a person within the charge to income tax, and
	(b) in accordance with generally accepted accounting practice the accounts of the borrower partnership record an amount as a finance charge in respect of the advance,
	the relevant partner may treat the amount for income tax purposes as interest payable by the borrower partnership on a loan.
	(10) In any case where condition B in that section is met, if a relevant member of the borrower partnership is a company within the charge to corporation tax
	(a) the advance is to be treated, in relation to the company, for the purposes of paragraph 19 of Schedule 9 to the Finance Act 1996 (and the other provisions of Chapter 2 of Part 4 of that Act) as a money debt owed by that partnership,
	(b) the arrangement is to be treated, in relation to the company, as a transaction for the lending of money from which that debt is treated as arising for those purposes, and
	(c) any amount which, in accordance with generally accepted accounting practice, is recorded in the accounts of the borrower partnership as a finance charge in respect of the advance is to be treated as interest payable by the borrower partnership under that transaction.
	(11) For the purposes of subsections (9) and (10), references to the accounts of the borrower partnership include the accounts of any relevant member of the borrower partnership.
	(12) For the purpose of determining when any deemed interest in respect of the advance is paid
	(a) the payments mentioned in section 774C(2)(f) or (4)(e) are treated as consisting of amounts for repaying the advance and amounts (the interest elements) in respect of interest on the advance, and
	(b) the interest elements of those payments are treated as paid when those payments are paid,
	and the deemed interest in respect of the advance is treated as paid at the times when the interest elements are treated as paid.
	(13) In this section deemed interest means any amount which is treated as interest as a result of any of subsections (6) to (10).
	(14) This section is subject to the exceptions contained in section 774E.
	774E Sections 774B and 774D: exceptions
	(1) Section 774B or 774D does not apply if the whole of the advance under the structured finance arrangement
	(a) is charged to tax on a relevant person (see subsection (7)) as an amount of income,
	(b) is brought into account in calculating for tax purposes any income of a relevant person, or
	(c) is brought into account for the purposes of any provision of the Capital Allowances Act as a disposal receipt, or proceeds from a balancing event or disposal event, of a relevant person.
	For the purposes of this subsection the effect of section 785A (rent factoring of leases of plant or machinery) is to be disregarded.
	(2) Subsection (1)(c) is not to be taken as met in any case where
	(a) the receipt or proceeds gives rise to a balancing charge, and
	(b) the amount of the balancing charge is limited by any provision of the Capital Allowances Act.
	(3) Section 774B or 774D does not apply if, at all times, the whole of the advance under the structured finance arrangement
	(a) is a debtor relationship of a relevant person for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships), or
	(b) would be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.
	For the purposes of this subsection references to a debtor relationship do not include a relationship to which section 100 of the Finance Act 1996 (money debts etc not arising from the lending of money) applies.
	(4) Section 774B or 774D does not apply in so far as the structured finance arrangement is an arrangement in relation to which
	(a) section 263A of the 1992 Act (agreements for sale and repurchase of securities) applies,
	(b) paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions and stock-lending) applies, or
	(c) Chapter 5 of Part 2 of the Finance Act 2005 (alternative finance arrangements) has effect.
	(5) Section 774B or 774D does not apply in so far as
	(a) the security under the structured finance arrangement is plant or machinery which is the subject of a sale and finance leaseback, or
	(b) the structured finance arrangement is an arrangement in relation to which sections 228B to 228D of the Capital Allowances Act apply with the modifications contained in section 228F of that Act (lease and finance leaseback).
	(6) For the purposes of subsection (5)(a), whether plant or machinery is the subject of a sale and finance leaseback is determined in accordance with section 221 of the Capital Allowances Act.
	But, in applying that section, it is to be assumed that the words and which are not a long funding lease in the case of the lessor were omitted from section 219(1)(b) of that Act (meaning of finance lease).
	(7) For the purposes of this section a relevant person means
	(a) if section 774B applies, a person in relation to whom the structured finance arrangement would (but for that section) otherwise have had the relevant effect (within the meaning of that section), and
	(b) if section 774D applies, a relevant member of the borrower partnership (within the meaning of that section).
	774F Sections 774B and 774D: power to provide further exceptions
	(1) The Treasury may make regulations prescribing other circumstances in which section 774B or 774D is not to apply in relation to a structured finance arrangement.
	(2) Any regulations under subsection (1) may make provision amending section 774E.
	(3) The power to make regulations under subsection (1) includes
	(a) power to make provision having effect in relation to times before the making of the regulations (but not times earlier than 6th June 2006),
	(b) power to make different provision for different cases or different purposes, and
	(c) power to make incidental, supplemental, consequential or transitional provision and savings.
	774G Sections 774A to 774D: minor definitions etc
	(1) For the purposes of sections 774A to 774D arrangement includes any agreement or understanding (whether or not legally enforceable).
	(2) For the purposes of sections 774A to 774D income deduction means
	(a) a deduction in calculating any income for tax purposes, or
	(b) a deduction against total income or total profits.
	(3) For the purposes of sections 774A to 774D
	(a) references to a person's receiving any asset include the person's obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it,
	(b) references to a disposal of an asset include anything which constitutes a disposal of the asset for the purposes of the 1992 Act,
	(c) references to payments in respect of any asset include obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it.
	(4) For the purposes of sections 774A to 774D, section 839 (connected persons) applies.
	(5) For the purposes of sections 774A to 774D references to the accounts of any person who is a company include the consolidated group accounts of a group of companies of which it is a member.
	(6) If any person does not draw up accounts in accordance with generally accepted accounting practice, sections 774A to 774D apply as if the accounts had been drawn up by the person in accordance with that practice.
	(7) Sections 277 to 281 of ITTOIA 2005 and section 34 above (lease premiums) are not to apply in relation to a premium paid in respect of a grant of a lease where the grant constitutes a disposal of an asset for the purposes of section 774A(2)(c) or 774C(2)(a)..
	(2) The amendment made by this paragraph has effect in relation to any arrangements whenever made (but see sub-paragraphs (3) and (4)).
	(3) In relation to arrangements made before 6th June 2006, amounts are, as a result of the amendment made by this paragraph,
	(a) to be charged to tax, or
	(b) to be brought into account in calculating any income for tax purposes or deducted from any income for tax purposes,
	only if the amounts arise on or after that date.
	(4) The amendment made by this paragraph has no effect in relation to any arrangement made before that date in so far as section 43B or 43D of ICTA (rent factoring) applies to it.
	(5) In any case where, in relation to arrangements made before that date, a person is treated, as a result of the amendment made by this paragraph, as being a party to any loan relationship
	(a) a period of account is to be treated for the purposes of Chapter 2 of Part 4 of FA 1996 as beginning on that date, and
	(b) the loan relationship is to be treated for those purposes as being entered into by the person for a consideration equal to the notional carrying value of the liability representing the relationship.
	(6) For this purpose, the notional carrying value is the amount that would have been the carrying value of the liability in the accounts of the person if a period of account had ended immediately before that date.
	(7) Carrying value has the same meaning here as it has for the purposes of paragraph 19A of Schedule 9 to FA 1996.
	Rent factoring of leases of plant or machinery
	3C (1) Section 785A of ICTA (rent factoring of leases of plant or machinery) is amended as follows.
	(2) After subsection (5) (provision about partnerships with legal personality) insert
	(5A) This section does not apply in so far as section 774B or 774D (structured finance arrangements) applies in relation to the arrangements mentioned in paragraph (c) of subsection (1) above as a result of the transfer mentioned in that paragraph..
	Transactions associated with loans or credit
	3D (1) Section 786 of ICTA (transactions associated with loans or credit) is amended as follows.
	(2) After subsection (5) (transaction under which a person assigns, surrenders etc income arising from property) insert
	(5ZA) But subsection (5) above does not apply if the person mentioned in that subsection is, as a result of section 774B or 774D (structured finance arrangements), chargeable to tax on the amount of income assigned, surrendered, waived or forgone..
	Structured finance arrangements: chargeable gains treatment of acquisitions and disposals
	3E (1) After section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) insert
	263E Structured finance arrangements
	(1) This section applies if
	(a) section 774B of the Taxes Act (disregard of intended effects of arrangement involving disposals of assets) applies in relation to a structured finance arrangement,
	(b) the borrower or a person connected with the borrower makes a disposal of any security at any time under the arrangement to or for the benefit of the lender or a person connected with the lender, and
	(c) condition A or B is met.
	(2) Condition A is that the person making the disposal subsequently acquires under the arrangement the asset disposed of by that disposal.
	(3) Condition B is that
	(a) the asset disposed of by that disposal subsequently ceases to exist at any time, and
	(b) that asset was held by the lender, or a person connected with the lender, from the time of the disposal until that time.
	(4) The disposal of the security by the borrower or a person connected with the borrower is to be disregarded for the purposes of this Act.
	(5) Any subsequent acquisition by the person making the disposal of the asset disposed of by that disposal is to be disregarded for the purposes of this Act.
	(6) In this section
	the borrower, in relation to a structured finance arrangement, means the person who is the borrower under the arrangement for the purposes of section 774A of the Taxes Act,
	the lender, in relation to a structured finance arrangement, means the person who is the lender under the arrangement for the purposes of that section,
	security means any such asset as is mentioned in subsection (2)(c) and (d) of that section.
	(7) For the purposes of this section
	(a) references to a person connected with the borrower do not include the lender, and
	(b) references to a person connected with the lender do not include the borrower..
	(2) The amendment made by this paragraph has effect in relation to disposals made on or after 6th June 2006.
	(3) The amendment made by this paragraph also has effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.'.
	No. 17, in page 192, line 19, at end insert
	'Loan relationships: repo and stock-lending arrangements
	13A (1) In Schedule 9 to FA 1996 (loan relationships: special computational provisions), paragraph 15 (disposal or acquisition made in pursuance of repo and stock-lending arrangements not to be related transaction) is amended as follows.
	(2) In sub-paragraph (2)(b) (transfer to original transferor (A) giving effect to entitlement or requirement to rights on re-transfer etc.), after to A insert by B.
	(3) The amendment made by this paragraph has effect in relation to any transfer to A (within the meaning of paragraph (a) of sub-paragraph (3) of paragraph 15) under arrangements
	(a) consisting in or involving an agreement made on or after 27th June 2006 for the transfer of rights by A to B (within the meaning of that paragraph), or
	(b) involving an agreement made on or after that date providing for a transfer giving effect to the entitlement or requirement described in paragraph (b) of that sub-paragraph otherwise than by B.'. [Mr. Watts.]

Schedule 8
	  
	Long funding leases of plant or machinery

Amendments made: No. 21, page 203, line 30, leave out from 'the' to 'purpose' in line 31 and insert 'main'.
	No. 24, page 209, line 7, at end insert
	'(6) A plant or machinery lease is not a funding lease in the case of the lessor if
	(a) before 1st April 2006, the plant or machinery had, for a period or periods totalling at least 10 years, been the subject of one or more leases, and
	(b) the lessor under the plant or machinery lease was also lessor of the plant or machinery on the last day before 1st April 2006 on which the plant or machinery was the subject of a lease.'.
	No. 25, page 212, line 43, at end insert '(but see also subsection (4A))'.
	No. 26, page 213, line 23, at end insert
	'(4A) A lease is not excluded by virtue of subsection (2) if
	(a) the inception of the lease is before 28th June 2006, and
	(b) by virtue only of section 70J(6), the lease is not a funding lease in the case of the lessor.'.
	No. 22, page 214, line 32, leave out from 'is' to 'that' in line 33.
	No. 23, page 216, line 26, leave out from 'if' to third 'the' in line 27. [Mr. Watts.]

Clause 99
	  
	Amendment of section 29 of the Energy Act 2004

Rob Marris: I beg to move amendment No.1, page 92, line 2, leave out clause 99.

Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 2, in clause 100, page 93, line 40, leave out clause 100.

Rob Marris: I wanted another run around the block on the UK nuclear industry from a financial point of view. Clauses 99 and 100 go hand in hand in amending the Energy Act 2004. Clause 99 deals with British Nuclear Fuels Ltd and clause 100 covers the Nuclear Decommissioning Authority.
	British Nuclear Fuels Ltd is a Government company, which has a turnover of approximately 3.5 billion. It appears to me, prima facie, that clause 99 is part of a device to fatten up BNFL from a tax point of view because of the sell-offs that it proposes to make. It will sell British Nuclear Group, and the rumours are that that is expected to raise between 500 million and 1 billion. It proposes to sell BNG America and is in advanced talks with Toshiba to sell Westinghouse this autumn for a reported 5.4 billion. It also owns a third of Uranco, a uranium reprocessing company, the other two thirds of which are owned in the Netherlands and Germany. British Nuclear Fuels Ltd is therefore a sprawling, large company, which deals with a large industry. Whatever happens in future, it will continue, for many years, to play a significant part in energy delivery and have a significant environmental impact in the United Kingdom.
	Hon. Members will not be surprised to hear me referring to the explanatory notes. Paragraph 12 of the explanatory notes for clause 99 states:
	The amendments provided in this clause will preserve the intended effect of section 29
	of the Energy Act 2004
	and ensure that a BNFL site licensee company does not incur corporation tax charges or acquire taxable losses as a consequence of the NDA taking responsibility for decommissioning and cleaning-up liabilities.
	I wanted to probe the Government a little about the figures.
	British Nuclear Group is a site-management and clean-up company, a contractor for the Government's Nuclear Decommissioning Authority and, as I said, a subsidiary of BNFL. It remains state owned, although BNFL may sell it off sometime in the next 12 months. British Nuclear Group has responsibility for Sellafield, formerly Windscale, for the older Members among us, and it operates 14 sites in the UK. There is also BNG America, which is a different operation, albeit owned by BNFL.
	The nuclear industry has a history of lying about figures. That is widely accepted, although whether it continues to do so is a matter for debate. However, proponents of nuclear power, and especially the nuclear industry in the 1960s, 1970s and 1980s, made statements that were clearly inaccurate on many counts. In some cases, they were outright lies rather than simply optimistic projections. The nuclear industry around the world is, in every case, heavily subsidised directly or indirectly by Governments, including in the UK.
	I am worried that clauses 99 and 100 would further the subsidies to a failing industry.

David Howarth: Does the hon. Gentleman agree that one of the difficulties with the two clauses is that nothing appeared about them in the press releases that accompanied the Budget resolutions and that the Red Book contains nothing about how much they might cost? The Government might be trusted more on that issue if such figures were available.

Rob Marris: It is part of the process of parliamentary scrutiny, in which we are currently engaged, to try to tease some of that information out of the Government. It might have been preferable, if the figures were available, for them to be in the Red Book. I suspectalthough I do not knowthat part of the Government's response will be to say that we are considering a recirculation exercise for corporation tax liabilities, allowable tax losses and so on. That is a strong suspicion, based on what my right hon. Friend the Paymaster General said when we had a brief debate on the matter in the Standing Committee, on which I served. I would like, as I said, to tease out some figures, and I am sure that the hon. Gentleman and others would also like to do so. Leaving aside all the environmental issues about nuclear power, which it is not appropriate for us to discuss todayI am sure that you would rule me out of order if I tried to do so, Mr. Deputy Speakerthere are clear financial questions to be asked about the nuclear industry, both in the United Kingdom and around the world.
	As I was saying, the industry is subsidised around the world. It is a private industry in the United States, where it is heavily subsidised. No nuclear reactor has been built or commissioned in the USA, that bastion of free enterprise, for at least 25 years because the figures do not stand up. In Finland, which has been widely quoted recently because it is opening up nuclear powerquite controversially, perhaps, for a Scandinavian countrythere are direct and very indirect subsidies for the power stations that are being built.
	I want to try to find out whether the Government are subsidising the nuclear industry in this country more than is commonly known, because of course there is a debate about whether there should be more nuclear power stations built in the United Kingdom. It is interesting to note, as I have teased out in the House before by parliamentary questions and in the Trade and Industry Committee, on which I serve, that any company could now apply to build a new nuclear power station in the United Kingdom.

Dawn Primarolo: The clauses deal with the history of nuclear power stations and with decommissioning today; they do not go forward in any way. I will cover that in my remarks. We are talking about responsibilities for decommissioning power stations that are already in operation and need to be decommissioned.

Rob Marris: Yes, of course these are in a sense backward-looking clauses, but in the context of a public debate about nuclear energy and what we do with the nuclear power stations and the spent materials that we havea debate that will develop this summer when the energy review is publishedwe need to try to be aware of the historic cost of nuclear power, as perhaps evidenced in these two clauses, to inform that public debate about the possible future cost of nuclear power.

Paul Goodman: The Paymaster General said a moment ago, no doubt accurately, that these clauses are about looking back. But is it not important at least to explore who will be doing this clear-up work, given that it would appear that a private company may be doing it and enjoying tax advantages that were designed for the public sector?

Rob Marris: I quite agree, and that is what I am trying to find out. Whether we talk about existing nuclear power stations or a new groupwhat the industry tries to dress up as a fleetwe have to look at the question of dealing with spent materials, radioactive waste and so on. That is particularly true of the radioactive waste that we already know exists, because it is here, and the waste that we know will be generated in the next 13 to 15 years, until 2020, the life of the current nuclear power stations. The Nuclear Decommissioning Authority is a Government body, but as the hon. Gentleman points out, it uses British Nuclear Group as a subcontractor for site management, clean-up and so on, and BNG is likely to be privatised in the next 12 months.
	I would like to know whether there are any tax breaks for the existing nuclear industry because that must inform the public debate about the futureor lack of future, whichever it may beof nuclear power stations in the United Kingdom. One thing that the nuclear industry has historically been very good at is getting hidden subsidies. I am not sure whether clauses 99 and 100 are indicative of that; I want to find that out. It already has a hidden subsidy through the cap on its public liability insurance, because given the liabilities it would be almost impossible, even with reinsurancethe hon. Member for South-West Bedfordshire (Andrew Selous) knows a great deal about that and could correct me if I am wrongto get insurance cover at a premium that would make a nuclear power station viable. There has to be an indirect state subsidy on those liabilities. Clauses 99 and 100 may or may not speak to that, and I wish to find out more.

Julia Goldsworthy: The Minister talked about how, in effect, the clauses look back. Is it not also true that they deal with transitional issues? As the explanatory notes to clause 100 say:
	The amendments provided in this clause will preserve the intended effect of section 30 and ensure that the NDA does not incur corporation tax charges or acquire taxable losses as a consequence of the accounting caused by the imposition of the transitional arrangements.
	If these companies are still benefiting during the transitional arrangements, does this provision not still qualify as a state aid? Is this not a question that needs to be answered?

Rob Marris: As I understand it, the transitional arrangements came in because the European Commission started examining whether there was or is unauthorised state aid in the UK for the nuclear power industry, part of which has been privatised and more of which will be privatised.
	Whatever the proponents of the nuclear industry say, we have what I would regard as a dinosaur industry that is using technology, even with the pebble-bed reactors and so on that it is talking abouttechnology that has been around in Germany since, I think, 1958, but which is supposed to be the new generation of nuclear powerthat is about 50 years old. The technology has never been operated anywhere without state subsidy, directly or indirectly. The proponents of a new generation of nuclear power stations are looking forward rather than backwards, which the clauses do, to a situation where there will not be state subsidies. I am a little cynical about that. I have heard it all before. Throughout my adult life I have heard about how there would not be state subsidies, and that we would have electricity too cheap to meter, for example. That never worked out.
	We are talking about old technology. It is about 50 years old, as I have said. That is the basic design, however much we talk about advanced gas water and all that, heavy water and can-do reactors, for example. It is, as I have said, old technology. It works in as much as it produces electricity, but it does not work in that it is not economic. Even with today's high energy prices, there are serious questions to be asked about whether the nuclear power that we have, let alone the nuclear power that we may have in future, is economic, given the direct subsidies for the existing nuclear fleet of power stations and the possible subsidies, whether on insurance or guaranteed purchase of electricity, for future nuclear power stations.
	As for the environment, we would be much better spending the money on energy conservation and renewables than on a new generation of nuclear power stations, but that is not a debate for today. The debate is whether clauses 99 and 100 are directly or indirectly a hidden subsidy for the nuclear industry that already exists. I hope that today, or perhaps by writing to me, my right hon. Friend the Paymaster General will indicate what the fiscal effects of the two clauses will be on the Government's net balance sheet. The explanatory notes talk about avoiding incurring corporation taxes and a company acquiring taxable losses.
	I wanted to get some idea for the entire industry, in as much as it is state owned in the UKthat is pending the sale of larger chunks of it than have already been sold offwhether corporation tax charges that might be avoided by means of clauses 99 and 100 will be greater than the acquired taxable losses that the clauses facilitate in a sort of wiping-out exercise. My right hon. Friend the Paymaster General, perhaps to use my words rather than hers in Standing Committee, referred to these measures being, in a sense, a recirculation of Government money.
	There is the fiscal net effectthat is, weighing the avoided corporation tax and the avoided tax write-offs through acquired losses and determining whether that is even or whether there is an imbalance. If there is an imbalance, what is it? That will enable us to have some idea at this stage of whether there will be yet another subsidy to an industry that is financially, let alone environmentally, a failed industry, or whether this is an accounting exercise that results in even stevens at the end. I hope that my right hon. Friend the Paymaster General will elucidate. If notI realise that there may be complex figuresI should like to receive a response in writing at a later date.

Paul Goodman: I am grateful for the opportunity to speak in this debate. As this might be my last chance to contribute to the Bill, I should like to pause and thank everyone from PricewaterhouseCoopers and elsewhere who has provided me with advice on technical aspects of the Bill over the past few weeks.
	It is appropriate to use the word technical for clause 99 because, as the hon. Member for Wolverhampton, South-West (Rob Marris) intimated, it is a difficult provision. As he said, we discussed the clause in Committee, and he will recall that I asked questions about it when it was debated on 6 Juneas, indeed, did he. Having had time to reflect on the debate in Committee, and having reread the relevant proceedings in  Hansard, I am not entirely happy.

Dawn Primarolo: While the hon. Gentleman is reflecting, perhaps he and the hon. Member for Falmouth and Camborne (Julia Goldsworthy), if she catches your eye, Mr. Deputy Speaker, will tell the House what their parties said in 2004, when the Energy Bill proceeded through Parliament. The clauses in the Finance Bill correct a mismatch, but the principle was accepted in the House in 2004. I would be interested to know what the two parties said thenthey probably supported the provision.

Paul Goodman: I am surprised that the Minister did not ask me that in Committee. However, the line of inquiry that I am about to pursue is the same as the one that I pursued in Committee. Strictly speaking, it is not predicated on the Energy Act 2004 but on the question of whether a private company would enjoy the tax advantages enjoyed by public companies.
	As I said, I am not entirely satisfied with the answers that I received from the Paymaster General in Committeethat might explain why the right hon. Lady was so anxious to intervene on meand neither, it appears, is the hon. Member for Wolverhampton, South-West.

Dawn Primarolo: I was just seeking information.

Paul Goodman: Indeed.
	Clause 99 aims to preserve the intended effect of section 29 of the Energy Act, to which the Paymaster General referred. According to the explanatory notes on the clause, which the hon. Member for Wolverhampton, South-West will have read, section 29 is intended to ensure
	that accounting entries made by certain publicly owned companies in the British Nuclear Fuels Group, arising from the recognition of the Nuclear Decommissioning Authority taking responsibility for nuclear decommissioning and cleaning-up, should not be brought into account for corporation tax purposes...Section 29...operates on the basis that the assumption of financial responsibility by the NDA would be recognised when certain events of the reorganisation occurred...The reorganisation took place on the 1 April 2005 however, between the Energy Act 2004 and the reorganisation, the European Commission
	as the hon. Gentleman said
	began a state aid investigation into the NDA. This caused transitional arrangements to be put in place governing the financial liability assumed by the NDA. As a result of these arrangements the accounting recognition by the site licensee companies of the assumption of financial responsibility by the NDA may be deferred and section 29 would not apply to the later accounting entries.
	I assume that that means that the tax advantage would not be enjoyed.
	As the hon. Member for Wolverhampton, South-West implied, since the Budget, it has been announced that one company in the BNFL groupBritish Nuclear Group, which is British Nuclear Fuels Ltd's specialist site management and nuclear clean-up businessis to be transferred from the public to the private sector. As I said in Committee, that sounds reasonable in principle and the Opposition are obviously the last group of people who will look unsympathetically on the case for transferring services from the public to the private sector. However, it is important that any tax arrangements that result from such a transfer are transparent, and that the interests of taxpayers are protected.
	I asked the Paymaster General on 6 June in Committee to correct me if I was mistaken in asserting that an exemption from corporation tax that applied to a public body is now to be applied to a private body. The right hon. Lady said at column 451:
	Although I recognise that the BNFL group
	I stress the next few words
	includes the private sector, tax and liabilities follow the normal tax provisions.
	So it seems on the face of it that an exemption from corporation tax that applied to a public body is now to be applied to a private body.
	I also asked whether the exemption was intended to make the sale more attractive. The hon. Member for Wolverhampton, South-West used the phrase fatten up, which is a more vivid way of putting it. My reading of the record of 6 June is that the Paymaster General did not definitively deny that claim. I would be grateful if she took the opportunity to do so now.
	I asked for precedents. The right hon. Lady cited the Government taking over British Energy plc's liability for decommissioning and certain other liabilities in 2005. She said at column 451:
	The hon. Member for Wycombe asked me . . . whether there are examples of a similar arrangement being made to prevent the circular movement of Government finances. There are such examples. I do not have them to hand, but I am happy to let him know what they are.[ Official Report, Standing Committee B, 6 June 2006; c. 451.]
	Two points follow. First, it has been suggested to me that the British Energy example is not particularly apposite. British Energy, it was argued, was effectively insolvent and the Government decided to rescue it, rather than have a major generator go bust. In other words, the British Energy example describes an old fashioned rescue operation, so reducing the tax burden of what the Government intend to be a newly privatised business, BNG, is surely not comparable. Secondly, I have not yet received from the Paymaster General, although I hope to do so in due course, the other examples to which she alluded.
	I want to try to get to the heart of what the Paymaster General meant on 6 June by speaking of the purpose of clauses 99 and 100 being to prevent Government money from, as she put it at column 452, moving in circles. On the evidence of that debate, it seems to me that the effect of the clause, if not the purpose, might no less accurately be described as reducing the tax burden of what will be a newly privatised business. If that is the case, a further question arises.
	The Nuclear Decommissioning Authority presumably employs private sector contractors other than BNG for one purpose or another. Do they also have arrangements in place that effectively reduce their tax burden? If notand I suspect the answer is notthere is a bit of mystery hanging over the clause. I hope the right hon. Lady will take the opportunity to clear it up.

Julia Goldsworthy: As my hon. Friend the Member for Cambridge (David Howarth) pointed out, there was nothing about these matters in the Budget statement, the press notices or the Red Book, and there was no information available at the time that the Budget resolutions were debated and passed in the House. The Paymaster General made a specific reference to the Lib Dem contribution to the relevant section of the Energy Act 2004, which was not debated in Committee, as I found when I looked back at  Hansard for that time. As has been observed, at that time all the organisations that would have been affected by these clauses would have been in the public sector, so effectively it would have been public money swilling around and the issue would not have been seen to be so important.
	The key issue is whether there is state aid and, if so, to what extent. While BNFL group is a publicly owned company, it is free from corporation tax, but when it becomes private it will be liable for corporation tax. It is not clear what happens in the transitional period. Is there a hidden subsidy and will it continue through the transitional arrangements?
	Finally, on the closing comments by the hon. Member for Wolverhampton, South-West, what are the net fiscal effects on the Exchequer? As well as writing to the hon. Member for Wolverhampton, South-West, will the Paymaster General undertake to place that information in the Library, because I am sure that many hon. Members will be interested?

DEFERRED DIVISIONS

Mr. Deputy Speaker: I now have to announce the result of Divisions deferred from previous days.
	On the motion on Northern Ireland, the Ayes were 303, the Noes were 163, so the motion was agreed to.
	On the motion on the summer Adjournment, the Ayes were 409, the Noes were 53, so the motion was agreed to.
	 [The Division Lists are published at the end of today's debates.]

Finance (No. 2) Bill

Question again proposed, That the amendment be made.

Dawn Primarolo: Thank you, Mr. Deputy Speaker.
	Sections 29 and 30 of the Energy Act 2004 were intended to prevent BNFL site licensee companies from incurring corporation tax charges as a consequence of accounting entries made to reflect the assumption of financial responsibilities for the decommissioning and cleaning up of certain civil nuclear sites by the NDA. As I said in Committee, the House agreed the provision to prevent a large amount of Government money from moving in circles. To be precise, it was intended to make sure that in transfers from public bodies, one public body does not have a tax-deductible loss, while the other public body receiving the assets has a gain that is also not taxable.
	In Committee, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned discussions on state aid issues subsequent to the 2004 Act. There was a mismatch between what was agreed by this House in the 2004 Act and subsequent clarifications on state aid. What is proposed nowit was included in the state aid notification in respect of the NDAis not considered as state aid, because the effect of the exemption is tax neutral with respect to the Government, which is why I have mentioned the circular effect between publicly owned bodies. The provision allows accounting entries without the problem of money coming in with one hand and going out with the other.
	My hon. Friend the Member for Wolverhampton, South-West has asked about the cost of decommissioning on the historic provisions of nuclear civil sites. That has nothing to do with the future, should there be one, because the matter is completely outside the arrangements. Clauses 99 and 100 were included in the Finance Bill because it was the next available parliamentary vehicle to correct the provisions in the 2004 Act, and I assure my hon. Friend that the clauses were not about preparing for a transfer to the private sector.

David Howarth: Will the Paymaster General give way?

Dawn Primarolo: I want to deal with the point about the private sector. If the hon. Gentleman can stay in his seat for long enough, he might find that I am going to deal with his question.
	Section 29 of the 2004 Act, which is amended by clause 99, applies to accounting entries made for accounting periods during which a company is publicly owned. Where a company is sold during an accounting period, section 29 treats the end of the public ownership as the end of the accounting period. Section 29 does not, therefore, apply to accounting entries made for accounting periods during which the company is in the private sector. At that point, the normal tax rules would apply to that company. Section 29 applies only to public sector companies. I hope that I have clarified that.

David Howarth: To close this down completely, is the Paymaster General confirming that the fiscal neutrality that she mentioned does not depend on when or whether any particular company is privatised?

Dawn Primarolo: I am talking about the creation of the Nuclear Decommissioning Authority and the movement from its predecessor authority, which is all that these provisions cover. The position as regards state aid confirms that it is tax neutral; otherwise, it would not get state aid. These provisions concern the arrangements in the Energy Act for transferring from one public body to another. The accounting period for those public bodies would end as soon as they became private companies and moved beyond the scope of the provisions.
	My final point is not directly relevant to the clause but may help the House. Under the 2004 spending review, the Nuclear Decommissioning Authority received a budget of 2.2 billion for 2005-06. That is to be derived half from commercial activities and, over time, commercial income in recognising those costs. As I understand it, the proposals on tax neutrality within Government, having been agreed by this House in 2004, had to be amended following a mismatch with regard to timing. The Bill lines that up again to preserve the position. I can absolutely confirm to the House that there is no question of state aid subsidies, nor can there be given the clearance that we have sought.
	On that basis, I hope that my hon. Friend the Member for Wolverhampton, South-West, who follows these issues with great interest and in some detail, will not press his amendment. I feel that his questions are more relevantly directed to the future than to the past, whereas these clauses are directed to the past and to ensuring that we discharge our responsibilities on nuclear decommissioning.

Rob Marris: I thank my right hon. Friend for clearly setting out the position. The situation changed slightly a year after the passage of the Energy Act 2004, which I recall I voted for, because of the intervention of the European Commissionhence these clauses and my questioning of them.

Dawn Primarolo: I have a further piece of information that I should have given to the House: I understand that the Liberals voted for the Act as well.

Rob Marris: I am grateful to my right hon. Friend for pointing that out. Of course, the Liberals do not seem to know that.
	I am greatly reassured by my right hon. Friend's assertion that the normal tax rules will apply when these companies are privatised, and that clauses 99 and 100 will deal solely with the tax position of the nuclear industry when it is in public hands. I am also reassured by her saying that the provisions will be tax neutral, should the amendments not pass and should the clauses pass into what will become the Finance Act (No. 2) 2006. However, in the interests of clarity regarding the nuclear industry, will my right hon. Friend write to me setting out the figures for the nuclear industry as covered by the two clauses? Will she specify the amount of corporation tax that will not be paid as a result of the measures, and the corresponding losses that will not be allowed to be offset? I hope that she will be able to do that. On that basis, I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.

Schedule 16
	  
	Real Estate Investment Trusts: excluded business and income

Amendment proposed: Government amendment No. 28, page 349, line 5, leave out paragraph 1 and insert
	'1 Incidental letting of property (whether in the United Kingdom or outside) which is held in connection with a trade in property.'. [Ed Balls.]

Mr. Deputy Speaker: With this it will be convenient to discuss the following:
	Government amendment No. 29.
	Amendment No. 64, in clause 106, page 97, line 14, leave out '6' and insert '5'.
	Amendment No. 65, page 97, line 23, leave out subsection (5).
	Amendment No. 130, page 97, line 24, at end insert
	'or on the Alternative Investment Market of the London Stock Exchange or its equivalent European Union exchanges.'.
	Amendment No.66, page 97, line 25, leave out '4' and insert '3'.
	Amendment No. 67, page 97, line 34, leave out '5' and insert '4'.
	Amendment No. 68, page 97, line 42, leave out '6' and insert '5'.
	Government amendment No. 27.
	Amendment No. 60, in clause 112, page 101, line 5, at end insert
	'; but no charge shall arise under this section in respect of a company whose predominant purpose is investment in residential property.'.
	Amendment No. 61, page 101, line 36, at end insert
	'(8) The Treasury may by regulations provide for the application of this section to companies whose predominant purpose is investment in residential property.'.
	Government amendment No. 30.

Mark Francois: I rise to speak to our amendment No. 130, which seeks to allow real estate investment trustsREITsto list on the alternative investment market of the London stock exchange or its equivalent European Union markets. In debating this issue, we return to part 4 of the Bill, which deals with the regime to introduce REITs. I have said on several occasions that we welcome in principle the introduction of such a regime in the United Kingdom; indeed, this is an initiative that we have been advocating for quite some time.
	That being the case, we have sought to work constructively with the Government to ensure that the regime is in good order when it commences its operation as scheduled in January 2007. I hope that it is fair to say that we maintained that approach in Committee, where we pressed the Government on a variety of issues, including the qualifying conditions for REIT status and the penalties for breaking those conditions, and the definitions to be used in operating the regime. The Minister might also recall that we were of some assistance, at the end of a lengthy afternoon sitting, in deleting clause 143 from the Bill. I see from his reaction that he remembers that.
	However, there are still some weaknesses in the proposed REITs regime that I should like to address, both in relation to our amendment No. 130 and to amendments Nos. 60 and 61, which have been tabled by my right hon. Friend the Member for North-West Hampshire (Sir George Young). I shall begin, however, by referring to Government amendments Nos. 27, 28, 29 and 30.
	Government amendment No. 27 relates specifically to clause 107 of the Bill, which deals with the conditions necessary for a business to qualify as tax exempt under the REITs regime. Condition 3 of clause 107 is that owner-occupied properties should be excluded from tax-exempt status. In Committee, we discussed the operation of condition 3 in some detailparticularly in relation to car parks, as I recall. A related issue had arisen during the consultation process that preceded our Committee deliberations, which was the definition of owner-occupied as generally understood under international accounting standard 40known as IAS 40 for short. That problem threatened to create unintended consequences for the REITs regime. The problem would be that if, in certain circumstances, an REIT company were to provide significant services to the occupier of one of its properties, the company might itself be deemed to be an owner occupier under the strictures of IAS 40, and therefore fall outside the REITs regime under condition 3 of clause 107.
	Government amendment No. 27 seeks to address that by ensuring that in such circumstances, where the tenant has exclusive occupation of the property, the accounting definition of owner occupied is effectively overridden, so that the REIT company is not deemed to have breached condition 3 of clause 107. The associated Government amendment No. 30 appears to be essentially a drafting amendment, which ensures that the revised application of clause 107 is extended to group companies via a corresponding change to the associated schedule 17. So far, so good.
	The British Property Federation welcomed the amendment with the following comment, which is germane:
	We welcome this amendment, which addresses a concern raised by industry during the consultation. However, we are aware that there may be a number of different situations where the definition of owner occupied property inadvertently causes a property to be excluded from the tax exempt business. Government should be aware of this and have a strategy in place to listen to industry concerns and react quickly to those situations through producing appropriate guidance.
	That seems a not unreasonable request, given that this is an especially complex area. I hope that the Minister and his officials can liaise with the industry to try to address, as far as practically possible, any remaining anomalies in the subsequent guidance, in the light of ever-changing commercial circumstances. At some point, the guidance might have to be updated to take account of changing market conditions. Perhaps the Economic Secretary will address that question when he sums up.
	Government amendments Nos. 28 and 29 relate to schedule 16 to the Bill. Schedule 16 defines various categories of business and income which are specifically excluded from the REITs regime. Those amendments relate to questions raised about the operation of the schedule in Committee, and when we debated the related clause 111the issue of potential double taxation of properties held on so-called trading account, and yet another issue relating to the definition of owner occupation, to reiterate the point about the complexity surrounding that term.
	In essence, those measures were originally proposed in the associated draft regulations, on which I spoke for the Opposition. In Committee, the Economic Secretary intimated that he would be likely to introduce amendments on those subjects on Report, and therefore to include such elements in the Bill, which in principle we welcome. He has kept his word and we commend him for that. We still hesitate about the solution, however, in this instance of what one might call clarification by exclusion. Even though the Government's solution will now appear in the Bill, they still seek to achieve that clarification by extending the inclusion to encompass all so-called trading properties, which underlines how little this part of the Bill does for residential property, as that is a particular challenge for residential property companies. I shall refer to that topic again shortly, although I suspect that my right hon. Friend the Member for North-West Hampshire will also be keen to catch your eye on that, Mr. Deputy Speaker, when he speaks to his amendments.
	Our amendment No. 130 is designed to extend the qualifying conditions for a company applying for REIT status under clause 106, specifically by allowing REIT companies to list on the alternative investment market of the London stock exchangeAIM, as it is now more popularly known. When the matter was touched on in Committee of the whole House, Ministers pointed out that, under EU law, that would also entail reciprocal listing on other comparable EU exchanges. Our amendment specifically caters for that, so I hope that it will be more acceptable as a result.
	There are several good reasons why REITs should be able to list on AIM. First, property companies registered as REITs are likely to enjoy significant tax advantages over those usually smaller companies denied that status. It therefore seems probable that there could be considerable consolidation in the property market, as AIM-listed companies that cannot qualify for tax-exempt status are gradually taken over by companies on the full listed market that do enjoy those tax advantages. That is potentially unfair, and could cause the United Kingdom property market to be increasingly dominated by a relatively small number of very large REIT companies. That is presumably not what the Government intended when they introduced the regime.
	Secondly, AIM-listed companies themselves might come under pressure to convert to a full stock exchange listing before they are really ready for it, principally in order to be able to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not expand the condition at least to cover AIM-listed companies that meet all the other conditions in the Bill? There are a number of them and we have already debated them at length, so I hope I need not repeat them now. That would facilitate greater diversity in the REITs market available to investors.
	I think the third point quite important. I am sure that, given his business experience in the United States, my hon. Friend the Member for Braintree (Mr. Newmark) will want to expand on it. US experience suggests that widening the listing base is a good way of helping the concept to take off. The  Financial Times estimates that more than $300 billion is now invested in US REITs, and notes that spreading the listing base was important to the generation of that significant investment. Our Government would presumably like to emulate that as well, at least on a comparable United Kingdom scale. We know that it worked well in the United States. Why should we not learn from that example? As the Americans have one of the oldest established REITs regimes in the worldI believe that it began in 1960they have considerable experience in operating REITs, and they found widening the listing base to be a good way of helping the concept to grow. Why do we not learn from our American cousins in this instance?

Brooks Newmark: I believe that one of the advantages of the American experience, which ties in with something that the Government are trying to achieve, is that quite a large unlisted real estate investment trust market stimulated residential housing. That is one of the Government's objectives. Conservative Members fear that not having an unlisted market, or even allowing REITs to be listed on AIM, will tend to skew investment towards the commercial rather than the residential market.

Mark Francois: That is an important point. As we said in Committee, we believe that one of the weaknesses of the current regime is that it is already heavily skewed in favour of commercial property. Leaving this impediment in the Bill may make the position worse. I shall say more about that shortly, whileI hopenot entirely stealing the thunder of my right hon. Friend the Member for North-West Hampshire.
	The listing issue is a particular impediment for residential property companies that seek REIT status. In Committee, I made the general point that the REITs regime appeared to have been designed primarily with commercial property in mind, residential property having been included almost as an afterthought. I said at the time that I wanted to initiate a debate on that, and on what might be done to deal with it.
	The fact that there appears to be a problem with residential REITs is illustrated by the fact that several major commercial property companies, including Land Securities and Hammerson, have already indicated that they have decided to convert to REIT status. As far as I am aware, no residential property company has yet made such a firm commitment.

Edward Balls: On Friday 2 June, the  Financial Times reported that a consortium of 17 housing associations was planning to launch a REIT. As we discussed this in Committee, the hon. Gentleman knows that we expected the residential REIT decisions to come later than the commercial decisions. I do not know whether he has any further information, but certainly on 2 June there were indications that housing associations were considering taking that step.

Mark Francois: I thank the Economic Secretary for that intervention, but he highlighted the difference himself. He said that residential property companies are considering taking such a step, but commercial property companies have said definitely that they will do it [ Interruption. ] He asked me a question and he must allow me to answer it. The difference is that several commercial property companies have said that they will definitely do it. A consortium of housing associations has said that it is considering doing it, but as I read the  FT it has not said that it will definitely do it. So we still do not have a concrete example of any residential property company saying that it will convert to REIT status on these terms. That is an important distinction.

Brooks Newmark: I suspect that part of the consideration for residential property companies is the cost of listing, as well as the additional regulatory burden. I suspect that that is the focus of the debate.

Mark Francois: Yes. If a company is thinking of listing on AIM it will bear several factors in mind, including the cost of that listing and compliance. If it is thinking of upgrading to the full London stock exchange, the cost of compliance and registering will also form part of its consideration. My point is that as the regime exists, it may encourage some AIM companies to go for a full listing when they otherwise would not be ready. They feel that they have no choice, because if they are going to remain in property, they need the tax exemptions to qualify as a REIT company. If they do not qualify and just sit on AIM, they may be vulnerable to takeover by fully listed companies that have that tax wrapper to enhance their power. My hon. Friend again makes an apposite point.
	We have established that there has been no definite announcement by any company to convert to residential REIT status. Moreover, residential property companies tend to be smaller, both by market capitalisation and the actual book value of their portfolio, than commercial property companies. While there are several residential property companies that might have little difficulty in obtaining REIT status on AIMsome 60 are registered on AIMforcing them into a full listing before they are ready could be a serious impediment to them. The British Property Federation argued that point in a note on the subject:
	The property industry in the UK believes the consequence of limiting REITs to listed companies will be to unnecessarily limit the development of REITs because it heightens the barrier for new entrants to the UK REIT regime and as a consequence makes it that much more difficult for new REIT companies to form. Clearly, this has consequences for those seeking to establish new investment vehicles in traditionally under-invested property markets, such as the residential private rented sector.
	Fifthly, AIM is specifically designed to help emerging companies that wish to be open to public investment, but would find it difficult to sustain themselves on a recognised stock exchange at an early stage in their development. The London stock exchange describes AIM on its website as
	the most successful growth market in the world.
	It continues:
	Since AIM opened in 1995
	under a Conservative Government, I remind the House
	more than 2,200 companies have been admitted and more than 24 billion has been raised collectively.
	As of May 2006, there were 1,528 companies, of which 1,266 were in the UK and 262 were international, listed on AIM. Those companies had a total market value of 74.2 billion and a turnover value of 28.6 billion, to May 2006. So AIM is a very successful market in its own right.
	Amendment No. 130 seeks therefore to open up the current clause 106 legislation to allow companies listed via AIM to convert to REIT status. That will enable the development of new or smaller companies in the REIT market, thus helping to ensure that REITs are a sustained, successful investment vehicle across the property market.
	Sixthly, and importantly, during the Committee of the whole House, the then Economic Secretary argued that an impediment to allowing REITs to list on AIM was that under EU law they would need similar listing opportunities on comparable EU exchanges. However, unlike our amendment at that stage, our amendment No. 130 specifically allows for that point. Moreover, the first condition of clause 106 is that to qualify for REIT status a company must be resident in the UK in any case, so even though a company could theoretically list on an alternative EU exchange rather than on AIM, given that it must be UK-resident to comply with the REITs regime generally, in most cases the most likely scenario would be for a UK listing, at least in the first instance. Common sense suggests that in the majority of cases a UK-resident company would probably register on AIM first, rather than going to one of the alternative EU markets. Even were that not the case, and the company registered on one of the alternative EU markets, why in principle need that be a showstopper? Will the Economic Secretary answer that question before we conclude the debate?

David Gauke: My hon. Friend raises a good point when he questions why a UK-resident company would list overseas. If it did so, it would have difficulty with potential investors, so there would, if anything, be commercial pressure to remain in the UK and to list on AIM or the London stock exchange. It would make little commercial sense to go elsewhere, because confidence in the company might be called into question, and if that were not the case, there would be no concern.

Mark Francois: I thank my hon. Friend for making that important point. He had considerable experience as a commercial lawyer before coming to this place. Indeed, I understand that his wife has ongoing experience as a commercial lawyer, so no doubt they discussed the matter before our debate. Mrs. Gauke cropped up regularly in the Standing Committee and I am pleased to be making sure that she does so again today before we conclude our debates on the Bill.
	Wherever the advice came from, my hon. Friend makes a good point. Given that a key conditionthe first conditionof clause 106 is that a REIT company must be UK resident, it is likely in practice that in most cases it would register in the UK if it wanted to register on an alternative market rather than on a full listing. But even if it did noteven if it wanted to register on one of the other EU exchangeswill the Economic Secretary tell us why that should be an absolute showstopper? Why should such a company not have REIT status?
	We know from the Standing Committee proceedings that the Economic Secretary sees himself as something of a philosopher, so we would like a clear philosophical response on that point[ Interruption.] My hon. Friend the Member for Fareham (Mr. Hoban) says that a clear response of any kind would be good. We shall see.
	I respectfully remind the Economic Secretary of the British Property Federation's comments about clause 106, which highlight the listing requirements as the major problem in its provisions. The BPF briefing note argued:
	In summary therefore, our main concern with Clause 106 as it is written is that while it is likely that a number of existing listed property companies will convert to the new REIT regime, the provisions do not cater for the growth and enhancement of this market which will in turn bring forward investment benefits and opportunities to improve the quantity and quality of property investment in under-invested markets. In short, by so restricting the REIT regime to only 'recognised stock exchange' listed vehicles the government may inadvertently smother the ability of the market to develop.

Edward Balls: Will the hon. Gentleman give way?

Mark Francois: Certainly. I have a question to ask the Economic Secretary in return.

Edward Balls: I am grateful to the hon. Gentleman. I was studying websites and I found that the shadow Secretary of State for Environment, Food and Rural Affairs, the hon. Member for East Surrey (Mr. Ainsworth), has publicly announced that the current level of new house building is excessive. Does the hon. Member for Rayleigh (Mr. Francois) think that his hon. Friend will support his desire for a wider role for the residential property industry in REITs, or might the hon. Member for East Surrey be inclined to oppose the comments that the hon. Member for Rayleigh is making today?

Mark Francois: I thank the Economic Secretary for that intervention, and I have two points to make in reply. First, under the principles of collective responsibility, I am sure that my hon. Friend will support the approach I am taking. Secondly, I do not want the Economic Secretary to think that he is the only person who can do a bit of research. I was researching in  The Independent this morning, and I saw a wonderful heading:
	Revealed: Secret Tory past of Brown babe Balls.
	The story reveals that while he was at Oxford university, the Economic Secretary was a member of the Oxford University Conservative Association.

Madam Deputy Speaker: Order. I fail to see how this relates to the amendment under discussion.

Mark Francois: It does not, of course. But my point is simply to demonstrate to the Economic Secretary that I, too, can do a bit of research. Also, when he sums up, can he answer this one question: when did the Chancellor know?
	The alternative investment market is generally regarded as something of a success story. We would like to make REITs a success story, too. Therefore we would like to know why the Government are reluctant to consider expanding the REITs concept to AIM. We hope that they will concede that point this afternoon, but if they do not, will they at least reassert the positionas given by the former Economic Secretary, the hon. Member for Bury, South (Mr. Lewis), and repeated in Committeethat, at the very least, they intend to keep this matter under review once the regime is rolled out from January 2007?
	I suspect that REITs will at some point be expanded by being listed on AIM. We shall see when that happens. We have put down our marker very firmly in this debate. If the Government do not take this step, I suspect that we will when we become the Government.

Julia Goldsworthy: I do not intend to rehearse all the arguments that we had on this issue on Second Reading and in Committee. However, let me state that the whole point of real estate investment trusts is that they offer a regulated, low-risk way for individuals to invest in the property market. The hon. Member for Rayleigh (Mr. Francois) is right that early indications suggest that there might be a question about where the balance lies in terms of the development of REITs and what proportion of them will be commercial REITs as against residential REITs. At present the balance is heavily in favour of the commercial sector, but as the Economic Secretary pointed out, it seems that some residential companies are hesitantly setting out their stall and looking to develop in that way.
	Given the way in which the self-invested personal pension scheme was put forward and then withdrawn, it is important that we allow these regulations to go ahead as was suggested in the consultation with the industry, which was very constructive, and let them bed down. At that point, we can look at where the imbalances are, and at ways to overcome them. That is when we should reflect on whether the proposals in amendment No. 130 are required or appropriate. The Liberal Democrats are relaxed about this issue. We would rather see how the REITs regulations bed down over the first couple of years, and how the companies in question bed down in the London stock exchange, and then, if there is a problem, look to AIM.

Stewart Hosie: I wish to address my remarks to amendments Nos. 64 to 68. The substantive amendment is amendment No. 65; the others are consequential, renumbering subsections in clause 106.
	The Minister and others will know that I and my party are very supportive of the concept of real estate investment trusts. Like many, we believe that they offer a route into property investment for the vast majority of people, who do not have the means to purchase a second property outright, or for those who do have the means but who simply wish to avoid managing such properties themselves. We also believe that if REITs are local and highly focused residential trusts, they have the opportunity either to complement the existing local authority sector or housing association and private residential rented sector, or to provide additional rented properties in areas where there is little provision, or none at all.
	However, the Bill as it stands will force all REITs to be listed on the stock exchange. We believe that that requirement alone might prevent the creation of the smaller, local, highly focused residential trusts that we would like to be created, along with the inevitable larger commercial ones.
	As we know, the minimum entry level for a stock exchange listing is 750,000, plus another 750,000 for fundraising, plus 2 to 5 per cent. in commission, and advisory costs of some 250,000. Fundraising on the stock exchange can be for any amount. We also know that the typical value of a stock exchange-listed company is 100 million upwards. If one combines those costs with the other rulesthat 75 per cent. of a REIT's commercial activity must come from rentals, and that 90 per cent. of the rental income must be returned in dividends to investorsthere is a very real danger, to which the hon. Member for Rayleigh (Mr. Francois) alluded, that REITs will focus solely on high-end commercial and retail properties that already offer a guaranteed high rental income. It is also likely that, to cover the listing costs and to meet all the other rules and obligations, such trusts will purchase property rather than seek to develop it.
	Our view is that to encourage smaller, more focused residential trusts to deliver rented housing, the entry bar should be far lower than the stock exchange listing requirement in current legislation. For example, the minimum entry cost for introduction to the alternative investment market is about 300,000. Fundraising accounts for another 300,000, and there are similar commission levels of 2 to 5 per cent.; however, the ongoing advisory costssome 50,000are far less than the 250,000 figure.
	In AIM, companies tend to be in the 10 million to 150 million range, with fundraising costs in the of 2 million to 20 million rangethe kind of figure that a small, locally focused residential trust might seek to raise. Further down the range is the off-exchange market, with a minimum entry figure of 30,000, fundraising costs of about 100,000 and similar commission levels, but with ongoing advisory costs of some 10,000. Ofex caters for businesses up to the 20 million marknot a tiny sumwhose fundraising costs are in the 300,000 to 4 million range. Of course, there is also the opportunity for any business or trust to be financed privately.
	So, given the other conditions applying to REITsnot least the residency qualificationthere seems little logic in forcing a REIT to be quoted on the official list; indeed, in the light of the associated costs and the typical size of businesses on the list, there is almost a disincentive for local residential trusts to be created. Our amendments would eliminate that requirement from the Bill by deleting subsection (5) from clause 106, thereby removing the condition that a trust company's ordinary shares be listed on the stock exchange. The only argument previously posited in favour of full listing is that it would perhaps give confidence to investors and to those seeking to rent a property from such a trust. However, a given individual or business will take the decision to invest or rent after applying the correct degree of scrutiny and due diligence.
	Although a full listing indicates a large company with deep pockets, a small, privately funded trustor one whose shares are traded on AIM or Ofexcould prove to have better local knowledge, equally experienced management and excellent internal management systems. In short, there should be no assumption that a stock exchange listed company is always a better option than one that is not listed.
	The key point is that although I welcome the creation of the REIT regime, the Government should not limit the creation of highly focused local residential trusts through the mechanism of a stock exchange entry and its associated fundraising costs. We have great hopes that REITs will complement the existing social and for-profit rented sector, but that opportunity would be enhanced by a more liberal approach to the regime's operation from the outset. I suspect that the Government have some sympathy with that argument.
	We want a commitment from the Government that they will move as quickly as possible to liberalise the REITs regime, in order to ensure that the hoped-for benefits in the residential sector are brought to fruition, and that REITs do not simply become players in the high-end commercial property market. I hope that, when the Minister sums up, he can guarantee, or at least hint at, the fairly speedy liberalisation of the market. Should that not be forthcoming, we willshould you allow us, Madam Deputy Speakerpress one of our amendments to a vote.

George Young: I commend my hon. Friend the Member for Rayleigh (Mr. Francois) on for his eloquent advocacy of amendment No. 130. I was delighted to hear that his arguments have struck a chord in other parts of the House. I agree with what the hon. Member for Dundee, East (Stewart Hosie) said towards the end of his remarks about getting a healthy residential market on its feet.
	I want to speak briefly to amendments Nos. 60 and 61, and I refer again to my entry in the Register of Members' Interests. Although it is not a registrable interest, I was also a member of the Oxford University Conservative Association, although the impact that I made may have faded by the time the Economic Secretary signed up a few years later. This is the fourth and penultimate time that I will speak in the Finance Bill proceedings on real estate investment trusts. Let me summarise where we are. There is a background of an all-party consensus on the need for a new investment vehicle to promote investment in residential property, attracting long-term institutional funds, broadening the market, giving a wider choice for those who want to rent and enabling private and institutional investors to get exposure to the residential property market that they do not have at the moment.
	When the Government took office, there was an all-party consensus that we needed an initiative. The Government took the debate forward and I give them credit for that. We had the Kate Barker report and then, in March 2004, the Treasury consultation paper. In paragraph 1.14, it said that a REIT
	structure in the UK would therefore set a challenge for the industry to encourage development of new housing, which could...be managed within
	a REIT structure. The paper went on to say:
	Improvements and expansion to this sector
	the private rented sector
	could enhance efficiency and flexibility in the housing market.
	It continued:
	The Government is keen to encourage greater renewal in the property sector, and the development of new...residential buildings.
	Finally, it stated that the Government were keen for a REIT
	to stimulate greater development activity in the residential market providing a vehicle into which new properties can be converted and managed more efficiently.
	There is no disagreement on either side of the House about those objectives. The debate in Committee was about whether those objectives would be achieved with the regime that is before us. We had a constructive and, by and large, consensual debate. We established that there was domestic harmony between the Economic Secretary and the Minister for Housing and Planning on the approach to REITs and that the framework for our debate was what the Chancellor said in his Budget speech:
	To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA.[ Official Report, 22 March 2006; Vol. 444, c. 293.]
	I want to bring one or two points from the debate to the attention of the House. The Economic Secretary was asked what went wrong with the previous initiatives and he replied:
	He
	I suspect that he meant me
	will probably agree that the regime did not work; in our view, it was too prescriptive and insufficiently flexible and thus did not attract capital.
	There is some concern that the new regime may have the disadvantages of the regime that he criticised in that debate. He went on to say:
	We are trying to deliver a regime that will be more flexible and more appropriate for residential property investors.
	I will come to that in a moment.
	The debate spanned a morning sitting and, as my hon. Friend the Member for Rayleigh said, a rather warm afternoon sitting. Again, I want to pick up on some of the key points of that debate. The Economic Secretary said that he fully supported the
	objective of encouraging further investment in residential property.
	We probably pushed him right to the limits of his negotiating powers by extracting from him a general undertaking that if things did not go as he hoped, he would have another look at the matter. He did not go quite as far as we all wanted, but at the end I withdrew the relevant amendment, saying:
	The Minister is a reasonable man, and he went as far as I suspect his brief allows him to go in giving the undertaking. Without prejudice to the possibility of bringing back on Report a related amendment...I beg to ask leave to withdraw the amendment.[ Official Report, Standing Committee A, 8 June 2006; c. 479, 503, 509.]
	I remind the House that there is enormous potential here. I understand that there is a proposition to build the Olympic village through a REIT. There is also the possibility of using REITs to provide student accommodation and other opportunities. However, the key question is whether we will have the correct regime. My amendments Nos. 60 and 61 approach the problem from a slightly different angle from the one that I moved in Committee. They would amend clause 112, which introduces the entry charge, or conversion charge, which is the entry tax that must be paid to become a residential REIT.
	It is worth bringing to the House's attention the fact that the entry charge, or conversion charge, was not a feature of the regime initially proposed by Kate Barker, who focused on residential REITs. The conversion charge came on to the radar when the concept was extended from residential REITs to commercial REITs. By converting to a REIT, a quoted company will avoid capital gains tax liabilities, so to defray any possible loss of revenue, the Government decided to introduce a conversion charge to compensate the Treasury for the prospective loss of finance. I have no difficulty with that as a concept. In my view, the charge was set at a generous level, and the Minister explained how it was calculated. When the announcement was made, the market was pleasantly surprised.
	Although a conversion charge might be appropriate for a commercial REIT, I argue that it is wholly inappropriate for a residential REIT. We have established that no quoted residential property company is likely to convert, so a residential REIT will have to start from scratch. In an earlier intervention, the Economic Secretary referred to 17 housing associations that are forming a consortium with a possible view to converting to a REIT. If one examines the model that that consortium will have to follow, one realises that there are severe disincentives to adopting the REIT structure.
	The first thing that will happen when a housing association wants to put its residential properties into a residential REIT is that it will have to pay capital gains tax on any profit from the disposal of those properties. That will crystallise a capital gains tax liability that would not have been there otherwise. Capital gains tax will have to be paid on any properties transferred from the existing portfolio to a residential REIT. Secondly, stamp duty at 4 per cent. will be payable by the REIT vehicle on purchase, and, thirdly, the REIT will have to pay a 2 per cent. charge on conversion. Those are serious disincentives before any new supply is created. If the objective is to establish a more benign fiscal regime, it is absurd to start by expecting a residential REIT to pay three taxes that it would not have to pay at the moment.
	I shall outline what has gone wrong. The original regime was aimed at residential REITs, but that has been transferred to cope with commercial REITs, so that regime is simply inappropriate. The Economic Secretary is frowning, but those three taxescapital gains tax, stamp duty and the conversion chargewill be payable before a residential REIT gets into the business of providing new homes, which is the object of the exercise. In a sense, the commercial property companies have become the cuckoo in the nest. The nest was originally designed for residential REITs, but the cuckoo has come along and displaced the original occupantthe residential REIT. Unless the Minister makes a concession today or at a later stage, I am worried that the hurdles that will confront [Interruption.] I will happily give way if the Minister is about to indicate that he will accept my amendments, or indeed waive some of the taxes to which I referred.

Edward Balls: Is the right hon. Gentleman really saying that the British commercial property sector, which is renowned nationally and internationally for its efficiency and strength, is a cuckoo?

George Young: I am slightly sorry that the Minister has taken so seriously the analogy that I was trying to convey to the House. In Committee he displayed traces of humour, which we enjoyed. I am sorry that that is the best response that he can produce to the rather serious case that I am making, which is that the regimeor the nest, if he does not find that reference offensivemost appropriate for the commercial sector is not appropriate for the residential sector. There is an offshore alternative to UK REITs, which the Treasury should not ignore.
	I hope that the Economic Secretary will reflect on the fact that there are some serious hurdles to overcome before the residential REIT gets going. I also hope that, when he winds up the debate he will exhibit some flexibilityand possibly some humourin his response to my case, which I have made against the background of the model that will be used by the very housing associations that he mentioned earlier.

Brooks Newmark: I, too, would like draw attention to my entry in the Register of Members' Interests. In common with my right hon. Friend the Member for North-West Hampshire (Sir George Young) and the Economic Secretary, I was a member of the Oxford University Conservative Association. I hope that hon. Members will forgive me for not registering that interest before.
	The objectives are quite simplethey are first, to stimulate an onshore REIT market and, secondly, to achieve the Government's and the Chancellor's aim of having a REIT market that stimulates residential housing. Those are the two aims that we want to achieve.
	When I read that Paul Herrington, head of UK property investment at Foreign and Colonial, believes that the Chancellor's proposals for REITs are welcome, it has to be a good thing. He thinks that the proposals
	confirm property's position as the main alternative asset class to equities and bonds
	and that changes need to be made to the Finance Bill. He recognised REITs' importance as an alternative asset class and went on to argue:
	There are other types of property investment vehicles that are currently outside the Reit regime. These include offshore investment trusts, limited partnerships and some very successful companies listed on Aim, which are likely to stay outside of it under currently proposed rules.
	He continued:
	By excluding Aim, we might end up with a two-tier market like a Premier League and a Division One.

Rob Marris: He said that?

Brooks Newmark: Yes, he did.
	As the Royal Institution of Chartered Surveyors has said:
	A successful REIT market should have both listed and unlisted vehicles in order both to allow maximum choice to investors of differing experience and size and also to provide a pooling facility for smaller REITs to develop outside a listed market until such time as they are ready and able to go publicthis should be particularly helpful to smaller players in the market.

Colin Breed: Does the hon. Gentleman think that having smaller REITs might enable more local and regionalised funds to be brought into play? Many people feel that they would like to help particular geographical areas, rather than necessarily contributing to the national pot. The smaller ones, operating on a regional and local basis, can be very attractive.

Brooks Newmark: The hon. Gentleman makes an excellent point. We discussed in earlier debates how to stimulate housing, but not just in the south-east where there are enormous stresses and strains. My hon. Friend the Member for East Surrey (Mr. Ainsworth) alludes on his website to the fact that there is already far too much house building in the south-east. If we want to stimulate such building out in the regions I see that I have finally got the attention of the Economic SecretaryI suggest that we follow Schumpeter's principle that small is beautiful. If we want to encourage regional housing developments that tend to be smaller, the particular residential housing required is more likely to be of the right size to be on AIM, but not to have the wherewithal, facility or finances to list on a fully listed stock exchange.
	The then Economic Secretary repeated a commitment in Committee of the whole House:
	We are willing to consider any consequence of market developments...We must always be willing to consider whether we want to change the regime in the interests of the market and clearly not to the disadvantage of the Exchequer.[ Official Report, 3 May 2006; Vol. 445, c. 1041.]
	I would be interested to know whether the current Economic Secretary is still willing to be open minded about the matter. Perhaps he would like to intervene? I guess not. As AIM listing will have no adverse impact on the ExchequerI recognise that the Economic Secretary and the Chancellor are concerned about thatwill the Economic Secretary give a commitment at least to review the listing requirement in response to the lack of expected take-up from the residential property sector? That is all we ask. We want the Economic Secretary to be open minded and watch how the market develops. If the Government are not achieving their aims of stimulating the residential, not simply the commercial side, for REITs, we ask them at least to take an open-minded approach.
	It is worth considering the comments of my hon. Friend the Member for Rayleigh (Mr. Francois) in Committee, when he gave a good analysis of the benefits of AIM. I must quote his thorough analysis in full. He stated:
	AIM-listed companies already provide a legitimate form of collective investment, so why have the Government decided to exclude them from the REIT regime from the start?
	The Economic Secretary never answered that. My hon. Friend continued:
	On a practical level, property companies that are registered as REITs are likely to enjoy significant tax advantages over thoseusually smallercompanies that are denied the advantages that REIT status confers. There could therefore be considerable consolidation in the market as REITs take over other property companies such as those on AIM
	my hon. Friend made that point again earlier today
	which cannot qualify for REIT status. That is potentially unfair.
	I know that the Economic Secretary views fairness as an important criterion when considering such matters.
	My hon. Friend continued by saying that, over time, that inability to qualify
	could mean that the UK property market was increasingly dominated by a relatively small number of large REIT companies. I presume that the Government did not intend that. We would move in the direction of an oligopolistic market and I am not sure that Ministers want that.
	Moreover, AIM-listed companies might come under pressure to convert to a full stock exchange listing before they were ready for it, principally to qualify for REIT status, thus potentially causing a distortion in the orderly evolution of the market sector. Why not, therefore, expand the condition to cover at least AIM-listed companies?
	My hon. Friend makes that point time and again. He was doggedindeed, almost terrier-likeabout it. He continued by saying that expanding the condition would
	thus facilitate greater diversity in the REITs market available to investors... There is a strong common-sense argument for doing that.[ Official Report, 3 May 2006; Vol. 445, c.1026.]
	I agree with that.

Madam Deputy Speaker: Order. The hon. Member should finish with the quotation.

Brooks Newmark: Your timing was perfect, Madam Deputy Speaker, because I had just finished the quote.
	The Government appear to be worried about the regulatory position, but AIM is not unregulated and it does not lack the transparency that the Government seek, for once, to encourage.

Madam Deputy Speaker: Order. I believe that I said that that was sufficient of the quotation, or has the hon. Gentleman completed it?

Brooks Newmark: To clarify, Madam Deputy Speaker, I was previously talking about my hon. Friend's analysis of AIM and I am now moving on to the regulatory regime.
	AIM does not stipulate minimum criteria for company size, track record or the number of shares required to be in public hands. The Government gave a parliamentary answer in response to queries about AIM's regulatory position. In November 2003, the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) tabled a written question:
	To ask the Chancellor of the Exchequer...what discussions he has had with the (a) London Stock Exchange and (b) Financial Services Authority on the alternative investment market becoming an unregulated market...what research he has carried out on the way in which an unregulated alternative investment market would affect companies and investors
	an important question
	and what discussions he has had with the European Commission about the alternative investment market becoming an unregulated market.
	The right hon. Member for Bolton, West (Ruth Kelly), responded:
	The London Stock Exchange...is a Recognised Investment Exchange...under the Financial Services and Markets Act...and
	this is the important part
	has to operate all its markets, including the Alternative Investment Market (AIM), in compliance with the recognition requirements for REITs. The Financial Services Authority...supervises its compliance with these obligations...Because AIM is not going to become an unregulated market, the Treasury has not done any research about the impact of such a scenario on investors and issuers, nor have we discussed it with the European Commission.[ Official Report, 4 November 2003; Vol. 412, c. 624-25W.]
	5.30 pm
	Let us come to the important issue, which is the housing requirements that the Chancellor, the Economic Secretary and, I assume, the Paymaster General are seeking. The Chancellor, as we have heard, said in this year's Budget speech:
	To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA.[ Official Report, 22 March 2006; Vol. 444, c. 293.]
	So, we hear two things now. We hear that the Chancellor is looking to the US as an excellent example of successful REITs, and he is looking at REITs as a way of stimulating the housing market. However, we have heard today that the main emphasis with REITs seems to be on stimulating the commercial side of the market rather than the residential side. The success of REITs in the USA is arguably because there is no listing requirement at all, which the Chancellor does not seem to have acknowledged. The important point is that without such a requirement smaller, more flexible residential property companies, would be allowed to participate.
	What do the Government really intend REITs to achieve? All the evidence points to the death of the original concept of stimulating investment in the residential property market. The hon. Member for Bury, South (Mr. Lewis), when he was Economic Secretary, said that
	one of the aims of introducing UK-REITs is to improve efficiency, affordability and professionalism in the private rented sector to the benefit of residential tenants.[ Official Report, 13 February 2006; Vol. 442, c. 1556W.]
	However, my right hon. Friend the Member for North-West Hampshire has said:
	When the concept was originally considered, there was concern that it should not simply be a new vehicle for existing property companies. Consideration was given to a requirement that, in order to qualify for a REIT, one would have to add to supply.
	He also said:
	Housing hardly gets a mention in the post-Budget comment on REITs.[ Official Report, 24 April 2006; Vol. 445, c. 422-23.]
	Dave Ramsden, of Her Majesty's Treasury, said:
	We would expect that REITs in the version we have ended up withREIT UK, if copyright allows us to call them that but that is another storyare more likely to encourage flexible investment in commercial property. That is clear from the consultation. It does not mean that we will not get some residential property, I think we will get some but it is not going to be the main focus of the REIT.
	That is the point that we continue to make: REITs are stimulating not the residential housing market, but the commercial property market.
	The debate over listing, however, consists of two main points. The argument for public listingthis is an important point that the Government makeis that it would subject companies to the appropriate listing authority rules regarding investor base, disclosure and market scrutiny, and would therefore help to ensure suitability for a wider retail investor base.

Dawn Primarolo: We have heard the hon. Gentleman recite what his hon. Friends think is important. We have heard him recite what the Government think is important. We have heard him recite also what Mr. Dave Ramsden thinks is important. When will the hon. Gentleman get around to telling us what he thinks is important and what the point of his speech is?

Brooks Newmark: The right hon. Lady must be patient. I am reaching my peroration, but not quite yet.
	The arguments against listing involve allowing a company to develop initially as an unlisted UK REIT potentially to increase the size and scope of the market, of which we have heard much already.

Edward Balls: My right hon. Friend was most unfair to the hon. Gentleman. He made an important point a few moments ago. He said that in his view there is far too much house building in the south-east. That is the point of his speech, and we have all taken it on board.

Brooks Newmark: That is an interesting interpretation of what I did not say.

Edward Balls: I wrote it down.

Brooks Newmark: I think that I will ignore the hon. Gentleman's interjection. The hon. Gentleman says that he wrote it down, but he obviously was not paying attention.
	Lee Nuttall, who is a real estate tax partner at Wragge  Co., said:
	It should be immaterial whether the investment comes from a private REIT or from a REIT recognised by the Stock Exchange. The expense of obtaining and maintaining a Stock Exchange listing will have an adverse impact on investor returns...It would be easy for the Government to squander this opportunity through over-regulation and a failure to listen.
	We criticise the Government for a lack of listening. Even the Financial Services Authority's implementation of the transparency directive on investment entity listing review in March 2006 said:
	A successful REITS market should have both listed and unlisted vehicles in order both to allow maximum choice to investors of differing experience and size and also to provide a pooling facility for smaller REITS to develop outside a listed market until such time as they are ready and able to go public. This should be particularly helpful for smaller players in the market.
	The National Association of Real Estate Investment Trusts said:
	While we anticipate that a good number
	not necessarily all
	of currently listed property investment companies will convert to UK-REIT status, we expect further companies to list for the first time in order to qualify under these tax rules. As a result, these proposals will have a significant impact in this area.
	We have heardit was an important point that my hon. Friend the Member for Rayleigh raisedthat about 190 are publicly traded REITs in the USA, with assets totalling more than $475 billion. The shares of those companies are traded on major stock exchanges, which sets them apart from traditional real estate. Other REITs may be publicly registered, but non-exchange traded or even private companies. About 800 REITs are not registered with the Securities and Exchange Commission and do not trade on any stock exchange. Yet, as we have heard, the US is an extremely successful market. Even the Chancellor of the Exchequer, as we have heard, looks to the US as an example of where a successful REIT market has been developed, and one that we should emulate.
	I am reaching my peroration. I say from the depth of my heart that I respect the Government's cautious approach on deciding whether to have a fully listed requirement versus AIM. I would not go as far as to suggest that we follow the US example of having an entirely unregulated REIT market with no listing requirements at all, notwithstanding the success of the experience in the US. I ask the Government to reflect once again on the advantages of AIM, which has a simple listing requirement, a flexible regulatory approach and lower compliance costs. It is transparent, it is established andthis is an extremely important pointit is the world's leading market for smaller companies. I am concerned that without further consideration of the proposal introduced by my hon. Friend the Member for Rayleigh, the Government will create an oligopoly of institutional investors. Instead of creating an inclusive, flexible and entrepreneurial REITs market, we will end up with a REITs market that is exclusive, inflexible and commercial.

David Gauke: Like the Economic Secretary I, too, am a former member of the Oxford University Conservative Association but not, I confess, a very active one. At the few meetings I attended there were too many ambitious lefties hedging their bets.

Edward Balls: rose

Madam Deputy Speaker: Order. I will allow the Minister to reply, but I do not want the debate to develop into an Oxford Union debate.

Edward Balls: I apologise in advance, Madam Deputy Speaker, but does the hon. Gentleman agree that one was disinclined to go to too many meetings because one feared that one would have to listen to more speeches by the hon. Member for Braintree (Mr. Newmark)?

David Gauke: I certainty do not agree, as my hon. Friend's speech had comprehensive qualities and was delivered with impressive passion.

George Young: It was very well informed.

David Gauke: Indeed.
	I wish to consider whether condition 3, which requires REITs to be listed on a recognised stock exchange, is appropriate, as it excludes shares traded on the alternative investment market. My hon. Friend the Member for Rayleigh (Mr. Francois) made an eloquent case for the inclusion of such shares. In the Committee of the whole House, however, the then Economic Secretary, the hon. Member for Bury, South (Mr. Lewis), argued against doing so, and the present Economic Secretary referred to those arguments in Standing Committee. Three arguments have been deployed including, first, the assertion that REITs require full regulatory protection, presumably to avoid a scandal. REITs are new products, so one would not want something to go wrong in the early years by listing them on AIM, which is regarded as a higher-risk market.
	We must, however, consider AIM's role. My hon. Friend did so, and spoke about the market's success. I, too, have visited the London stock exchange website, and the very first words on the AIM homepage state that the market is
	specifically tailored to growing businesses.
	Many REITs are growing businessesas a new product, they will probably grow largerso it is appropriate to list them on AIM. The hon. Member for South-East Cornwall (Mr. Breed) said that the market provides an opportunity for regional REITs, as did the hon. Member for Dundee, East (Stewart Hosie). That is an important element which I, as a localist, would support.
	The argument is about investors trusting the investment manager. If they want the security of a more highly regulated market, they should invest in REITs that are listed on the London stock exchange or their European equivalents. If that is what the market demands, there are unlikely to be many REITs listed on AIM. There could easily be REITs that are aimed more at institutional investors, which it would be more appropriate to list on AIM because it is less regulated and less expensive. I therefore do not find that argument entirely convincing. However, it is worth stressing that at almost every stage of the Bill, the Government said, and I hope the Economic Secretary will reiterate, that the matter will be kept under review.
	When we discussed AIM in Standing Committee, the flavour of the remarks made by the Economic Secretary was that AIM was part of a transitional process: a company lists on AIM for a while, then it grows and gets a full listing. Clearly, some companies do. The figures on the London stock exchange and AIM website that were quoted by my hon. Friend show that in total 1,528 companies are listed. The total number of admissions is 2,401. Many of the 900 or so companies that are no longer listed on AIM will no doubt have a full listing. Some may not. Some may have been merged, and others may be de-listed altogether. That still leaves a substantial number, 1,528, which remain on AIM, so we should be a little careful about characterising AIM as a stage that a company passes through. It does not always work like that. For many companies it is their final destination.
	I turn to the second argument used by the former Economic Secretary, that the expression
	'recognised stock exchange' is a fundamental concept used in our tax legislation.
	That is true, but it should not be leading policy. Just because the expression recognised stock exchange is appropriate for qualifying for an ISA, that does not seem to be a persuasive argument for it to apply to REITs and for condition 3 to be drafted as it is.
	The third argument, which my hon. Friend dealt with thoroughly, was set out by the former Economic Secretary when he said:
	Thirdly, and crucially . . . it would not be possible to allow companies with shares listed on AIM to be eligible for the regime without also extending the same position to companies listed on similar markets in the European Union.[ Official Report, 3 May 2006; Vol. 445, c. 1044.]
	He made two arguments to support that. One was the cost to the Exchequer of allowing that to happen, which the former Economic Secretary said would be difficult to quantify at this point. The second was the risk for small investors.
	The same points about caveat emptor, trusting the people and the reality of the risk can be made again, but I come back to what my hon. Friend said about condition 1, which states that a company must be UK resident in any event. If that is the case, it is unlikely to want to list in another EU jurisdiction. If it does, that is unlikely to be a commercial advantage in marketing it to the UK, particularly if it was listed on an EU version of the alternative investment market. That would be commercially unattractive, so companies are unlikely to do it. If it is attractive commercially, that is probably because those companies are able to overcome any reputational concerns about the particular market. If the company is able to overcome such reputational concerns, the second argumentthe risk to small investorsis likely to fall away. The matter comes down to the issue of the cost to the Exchequer. I am sceptical that it would be extremely expensive, because, for the reasons that I have outlined, few companies will list on foreign exchanges. The leading exchange in Europe is the London stock exchange, and the leading alternative investment market in Europe is AIM.
	I ask the Government to continue to review the matter. As one former member of Oxford University Conservative Association to another, I ask the Economic Secretary to look again at the policy. If the Government are not prepared to accept the amendment today, I hope that they will review the matter soon.

Philip Dunne: I do not want to disappoint hon. Members who were members of the Standing Committee, so I shall declare an interest: I am currently chairman of two fully listed companies, one of which is an investment vehicle and the other of which is a real business, although I will be in that position for a matter of days because the company has just been taken over.
	Craving your indulgence for a moment, Madam Deputy Speaker, I was also at Oxford university, although I was not a member of OUCA. However, I was educated at the same college as the Economic Secretary, where we shared some of the same tutors, although I cannot recall reading any of Professor Davison's texts.
	I apologise to my hon. Friend the Member for Rayleigh (Mr. Francois) for missing his opening remarks on amendment No. 130, because I was engaged in Select Committee. The Government are caught in an academic dilemmathe distinction between the full market and AIMwhich may stem from the academic approach that the Economic Secretary has taken to many of the clauses in the Finance Bill, but I want to draw to his attention what is happening out there in the real world.
	My hon. Friends have already referred to some of these statistics. If one casts one's mind back to the beginning of this Government, one recalls that 2,704 companies were listed on the main market, and 252 companies were quoted on AIM at the beginning of 1997. As we have heard, the number of quoted companies on AIM had risen to 1,528 by the end of May, which is an increase of 1,276. Over the same period, companies were leaving the full market in droves, many as a result of takeovers and some as a result of migrating down from the main market to AIM. The numbers are revealing: there are currently 1,326 UK companies left on the main market, 29 per cent. of which are investment vehicles, which means that there are now only 939 UK trading companies on the main market. That significant reduction has been more than matched by the increase in the number of companies quoted on AIM.
	It is also revealing to discover that there are 43 real estate, holdings and development companies on the main market, yet 70 real estate, holdings and development companies are currently quoted on AIM. I contend that companies that have the choice of whether to take advantage of full market listing or to list on AIM tend to list on AIM, because of the lower costs, lighter regulation and the fact that the market has matured. AIM is now regarded as an appropriate place to gain access to capital, whereas in the early days people had their doubts. When the company that I took to market was listed in 1998, we regarded it as appropriate to go direct to the main market, although it was a small company, because there were concerns about access to capital on AIM. Those concerns have been substantially overcome.
	We therefore have to ask ourselves why the Government are not prepared, at the introduction of this new regime, to sanction quotation on AIM as perfectly legitimate and appropriate for new REITs. The arguments that they advanced have been thoroughly demolished by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) and, I am sure, by my hon. Friend the Member for Rayleigh, whose comments I look forward to reading tomorrow in  Hansard. The argument advanced by the Economic Secretary in Committeethat there would be a greater potential risk to investors should these shares be available on AIMis palpable nonsense. I hope that he will reflect on this debate and on what was said in Committee and will be prepared to accept amendment No. 130 if it comes to a vote.

Edward Balls: I have a wide range of speeches and points to respond to. The right hon. Member for North-West Hampshire (Sir George Young) accused me of taking him seriously, and criticised me for it. We had an interesting debate about the distinction between Schumpeter's and Schumacher's views on the concept of small is beautiful. The hon. Member for Ludlow (Mr. Dunne) chided me for not understanding the real world, having just admitted in his declaration of interest that he runs an unreal company. It would be interesting to find out what that means in practice.
	There have been several other references to the past, and I am happy to explain the position. Conservative Members might have heard of a writer called Geoffrey Trease, who wrote a series of books about Bannermere, a fictional lake in the Lake District. The hero of the books goes to Oxford university, the first of anybody in his family to do so. When he gets there he joins all the political societies so that he can go to hear all the speeches at all the political clubs. I did the same. I joined the Labour, Liberal and Conservative clubs and went to hear very many speeches. I heard the then Chancellor of the Exchequer discuss the economy and the then Trade and Industry Minister discuss industry and housing. That was very interesting, as both of them left the Government within months.

Mark Francois: The hon. Gentleman says that at Oxford he even joined the Liberals, as they would then have been. If he was so liberal in deciding to join all those different markets at the same time, why cannot REITs list on AIM?

Madam Deputy Speaker: That is quite sufficient about student politics. May we return to the debate?

Edward Balls: Thank you, Madam Deputy Speaker.
	We have also discussed, in passing, real estate investment trusts, which we debated at length in Standing Committee and in the Committee of the whole House. I am pleased that there is cross-party support for our aims for the REITs regime. We believe that it will be successful when it is introduced next January, that it will remove inefficiencies that currently persist in the commercial and residential property investment markets, and that it will support our wider housing policy and the implementation of the Barker review.
	I will not go over all the points that were debated in Committee, but try to respond in detail to some of those raised today. I shall start by responding to the hon. Member for Rayleigh (Mr. Francois) on Government amendments Nos. 27 to 30. On 2 June, I made available to Committee members the draft excluded business regulations, which amended schedule 16. That followed a commitment made by my predecessor, my hon. Friend the Member for Bury, South (Mr. Lewis), which I was keen to honour not only in the spirit but the letter to give sufficient time for proper consideration. As the hon. Member for Rayleigh reminded us, we had a detailed discussion about car parks, phone masts and other matters. I hope that we provided clarity that will give the industry a basis on which to plan ahead. During that debate, I explained to hon. Members that a better way to effect these changes than the draft regulations would be by way of a Government amendment to the Bill as it passed through its parliamentary stages. As I explained to the Committee, the points that prompted the changes had been raised at a very late stage and it had not been possible fully to analyse the issues in time to table an amendment in Committee. Instead, we decided to expose the issues in draft regulations and to consult on the details, with the aim of making the necessary changes through amendments to be tabled on Report.
	Government amendments Nos. 27 to 30 are the outcome of that consultation. They deal with two sets of circumstances: owner-occupied property, and property held as trading stock. Amendment No. 28, which deals with trading stock, aligns the treatment of rental income from this kind of property with that already set out for rent incidental to a trade of property development. The amendment will keep trading stock property out of the ring fence, which will mean that the incidental rent will be taxable but the measure will remove the threat of double taxation that could otherwise follow from taxation of any increase in the value of the property at conversion and the levy of an entry charge on the same value. The industry was keen for us to clarify that position.
	Amendments Nos. 27, 29 and 30, which deal with owner-occupied property, address two issues. The first is to ensure that rental income from owner-occupied property is excluded from the tax-exempt business of a UK REIT, as was our original policy intention. The second is to allow into the ring fence some properties that, despite be let to unconnected third-party tenants, fall to being accounted for as owner occupied. Their exclusion was an unforeseen consequence of the international accounting standards definition of owner-occupiedas the hon. Member for Rayleigh pointed outand not in line with our original policy.
	These changes are the result of points being brought to our notice by the industry, and I am sure that it will welcome them. They are fully consistent with the statements that I made in Standing Committee. On the definition of owner-occupied property, I can assure the hon. Member for Rayleigh and the House that we will continue to work with the industry and to listen to any issues arising on the matter. I hope that that will give him the reassurance that he seeks.
	A number of issues have been raised today that pertain to the more general question of the balance between residential and commercial property. I will deal with the specific points first, and refer to the general issue at the end. I shall deal first with amendments Nos. 64 to 68, and then with amendment No. 130, which deals with the listing requirement.
	Amendments Nos. 64 to 68 have been tabled by the hon. Member for Banff and Buchan (Mr. Salmond) and his colleagues, and were spoken to today by the hon. Member for Dundee, East (Stewart Hosie). Taken together, they would remove altogether the requirement that a company should have its shares listed on a recognised stock exchange before it can become a UK REIT. That would allow any company to enter the regime. We have estimated that the cost of the amendments, if passed, would run not into tens or hundreds of millions of pounds but into billions of pounds. It would therefore be quite wrong to accept them. I hope, however, that in explaining why we believe that a requirement for listing is important I shall be able to give some reassurance to the hon. Member for Dundee, East.
	Amendment No. 130 also relates to the listing requirement. However, rather than removing it altogether, it seeks to extend the definition to include the alternative investment marketAIMof the London stock exchange and its equivalent in the European Union. This issue was debated at length during the Committee of the whole House, as well as in the Standing Committee. Following those Standing Committee debates, I looked again in detail at our requirement for a full stock exchange listing. As I explained to hon. Members at the time, I had come late to those debatesmy hon. Friend the Member for Bury, South was the Minister during the Committee of the whole Houseand I wanted to understand the difference between a full listing on the London stock exchange and a listing on AIM.
	In passing, I want to say that I completely associate myself with what the hon. Member for Rayleigh said about the success of AIM, and its importance not only as a liquid market but a tax advantage market, compared with a full listing. Capital gains tax, inheritance tax and loss relief are all reasons why we tax advantage an AIM listing in order to bring new companies into listing. The success of London as a market that attracts listings from around the world has increased substantially over the past few years, and I am sure that the success of AIM is part of the broader success of London as a centre for listing. Therefore, I fully support the continuance and strength of AIM.
	We always aimed to ensure that the UK REIT regime would make property investment accessible to small investors in a way that was revenue neutral in tax terms while providing proper protection. The requirement for a listing on a recognised stock exchange assures investors, especially small investors, that their investments are covered by the full protection of direct regulation by the Financial Services Authority. That has a direct bearing on companies, through rules on dispersion of the share base and share approval for major transactions. An AIM listing has several tax advantages, while a full listing on the stock exchange has several more onerous requirements, ensuring proper protection for the smaller investor through direct FSA regulation, but also ensuring that the tax advantages that I set out are used for the intended purpose. We argued consistently that the right approach was to restrict the REIT regime to a full listing, partly to protect the revenue base and to ensure that it is revenue neutral, and partly to protect the small investor. We made that point consistently in consultation and in discussions with several interested parties, including the Investment Property Forum, the British Property Federation and the Royal Institution of Chartered Surveyors, and our objective has always been understood.
	Aside from the regulatory aspects, it is important to take account of suggested changes to the rules in the context of the regime as a whole. We are considering a package of legislation and conditions that combine substantial tax advantages with substantial restrictions and protections to ensure that we achieve our objective, but in a way that does not run to substantial cost. While the costs of the Scottish National party amendments would run into billions of pounds, there is no doubt that these amendments would cost hundreds of millions of pounds, not least because allowing such listings to qualify for other European markets would run not only a regulatory risk but a financial one. As I said to the hon. Member for Rayleigh, I have considered the matter again, as I wanted to understand exactly what was happening, and we still believe that we have the right balance of regulation and protection to achieve a revenue neutral package and encourage the establishment of a REIT regime.

Mark Francois: If more companies were allowed to list as REITs on AIM, they would put their property portfolios into the REIT regime, on which a 2 per cent. entry charge would be levied, which would be revenue raising. The Economic Secretary said that part of the Government's rationale in not allowing REITs to list on AIM was to protect small investors. What is the difference in principle between small investors investing in lots of other companies listed on AIM but not in property companies listed on it?

Edward Balls: We are trying to combine those protections with the revenue neutrality that I talked about. On the basis of our calculations and estimates, a substantial increase in the entry charge, above 2 per cent., would be necessary to make the proposal revenue neutral. As a whole, the package has been put together to allow substantial tax advantages while at the same time ensuring that such investments will be genuine and not for tax purposes. Removing any one of those conditionsespecially one as important as listing on a recognised stock exchange, which brings with it a wide range of regulatory and market-driven protectionswould, I fear, result in the imposition of detailed rules and potential increases in costs elsewhere, and would undermine the regime that we have put together.
	We consulted for a long time on that regime, and responded in detail to a number of points. We have discussed today whether the Government have been willing to respond to points made in consultation during the Bill's passage so far. I do not think any Opposition Front Bencher could disagree with the proposition that we have not only consulted extensively on the REITs regime but, in very material ways, responded to what has been said. In the same spirit I took advice on not just cost, but the protection that we could give investors to ensure that their investments would genuinely fulfil their intention of investing in residential property, as opposed to merely benefiting from a tax advantage. Our judgment was that we had got things right.

Stewart Hosie: The Economic Secretary has said a number of times that the Government believe they have got the balance about right, ensuring both that the revenue base is protected and that there is enough regulation to protect investors. That would still leave us with very large REITs, probably worth more than 100 million. What will the Government do to encourage smaller trusts with a local residential focus, if the Economic Secretary is not prepared to liberalise in the way that has been suggested today?

Edward Balls: I am grateful for that intervention, which allows me to deal with the broader comments made by the hon. Gentleman, the hon. Member for Rayleigh and, in particular, the right hon. Member for North-West Hampshire (Sir George Young). I apologise to the right hon. Gentleman if I took him literally when he started talking about cuckoos. A few weeks ago, we discussed the proliferation of Jaguars. As I said then, I know that the right hon. Gentleman has a great deal of experience and understanding of these matters. I am very pleased that as a result of contacts since the Committee stage, we will meet on 18 July so that I can hear from him directly about his concerns and also his ambitions for residential property investment in our country. I was also encouraged to receive a letter from him a few weeks ago, after the Committee stage, in which he told me that he had engaged in a dialogue with a housing association that is thinking of establishing a REIT. I commend him for the work he is doing to ensure that the take-up of REITs is as successful as we all want it to be.
	We are not attempting to establish a regime that will try to bias investment in one direction or another. We want a regime that is not particular, distorting or potentially inflexible in the way in which it encourages in the property sector. The right hon. Gentleman asked why the 1996 regime had been too restrictive, which is how I described it in Committee. The main problem was the fixed upper limit on the cost of each unit that could be part of the regime, which was lower than the cost of most houses. It was not successful, because most houses could not be invested in. There are no such restrictions or upper limits in our UK regime.

George Young: I welcome the Economic Secretary's approach. Does he accept, however, that while a conversion charge may be appropriate for a quoted commercial property company, it is a real disincentive to a residential REIT starting from scratch?

Edward Balls: I think I have explained our diagnosis of the 1996 regime. I shall be happy to discuss the history at our meeting on 18 July, but I think our most important task is to ensure that the regime works. I have assured the right hon. Gentleman that we intend the regime to support investment in both commercial and residential property. I have also assured the hon. Member for Rayleigh and others that we will continue to keep the listing issue under review, and I repeat that assurance today. We do not have a closed mind. We want small investors to invest in both kinds of property under the regime. However, as I have said, on the basis of extensive consultation we believe that we are establishing the right regime, and we ask the House to support it so that we can achieve our objectives.
	The problem with the amendments is that they would introduce inflexibility and distortions. They would cost substantial amounts of money or would increase the entry charge for other aspects of the regime. The danger is that the amendments would also encourage people to manipulate their affairs to qualify for more generous tax reliefs if they presented their REIT in one way rather than another. That would be a retrograde step. I ask the right hon. Member for North-West Hampshire to retain his interest in these matters but to support the regime that the Government propose.
	As I explained to the hon. Member for Rayleigh, we always imagined that the commercial property sector would make its intentions clear earlier, because of the scale and sophistication of its operations, but that it would take more time for housing associations and some other smaller investors on the residential side to consider the way forward. We are encouraged by the fact that discussions are continuing.
	We have been criticised by Opposition Members for not doing enough to support investment in residential housing, and perhaps the regime will not fulfil the thinking behind the Barker review. I understand the thrust of that thinking, because only a few months ago the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), told a conference:
	I want us to be on the side of the first time buyer, helping young families realise their dream of home-ownership.
	His sources explained that he was trying to shed the Tory image of nimbyism. The problem is that that message has not fully got through. I referred earlier to the views of the hon. Member for Braintree and the belief of the hon. Member for East Surrey (Mr. Ainsworth) that house building is excessive. I draw the House's attention to early-day motion 158, opposing house building in Essex, which has been signed by the hon. Member for Rayleigh, and to early-day motion 23, which opposed house building in Hertfordshire and was signed by the hon. Member for South-West Hertfordshire (Mr. Gauke). The right hon. Member for Horsham (Mr. Maude), the chairman of the Conservative party, said of housing in Sussex:
	I oppose the huge increases in house building currently being contemplated.
	[ Official Report, 19 October 2005; Vol. 437, c. 847.]
	The hon. Member for Chipping Barnet (Mrs. Villiers) said:
	Suburbs like Barnet are under attack from John Prescott's excessive targets for new house building

Madam Deputy Speaker: Order. The Minister is now going rather wide of the group of amendments that he is addressing.

Edward Balls: I shall finish with this conclusion. If one wants to be credible in one's support for first-time buyers, one has to support not just REITs, but the Barker review in its entirety. That means supporting new house building, not opposing it case by case and constituency by constituency.
	 Amendment agreed to.
	 Amendments made: No. 29, page 349, line 15 , at end insert
	'2A (1) Letting of property if the following two conditions are satisfied.
	(2) Condition 1 is that the property is let
	(a) by one member of a group to another, or
	(b) by a member of a group to a company the shares in which are stapled to the shares of a member of the group.
	(3) Condition 2 is that the property would fall in accordance with generally accepted accounting practice to be described as owner-occupied.
	(4) For the purpose of sub-paragraph (2)(b), shares of one company are stapled to shares of another if in consequence of the nature of the rights attaching to the shares of the one company (including any terms or conditions attaching to the right to transfer the shares) it is necessary or advantageous for a person who has, disposes of or acquires shares of that company also to have, to dispose of or to acquire a holding of shares of the other company.'.
	No. 101, page 349, line 19, leave out from 'into' to end of line 20 and insert 'structured finance arrangements to which section 774B or 774D of ICTA applies (factoring of rent and other income receipts).'. [Dawn Primarolo.]

Madam Deputy Speaker: Does the hon. Member for Dundee, East (Stewart Hosie) wish to press amendment No. 65?

Stewart Hosie: On the basis of the commitment by the Economic Secretary to an ongoing review and the possibility of a many billion pound reduction in tax yield if the system is liberalised very quickly, I do not seek to press the amendment. However, we still believe that the system is too restrictive.

Clause 106
	  
	Conditions for company

Amendment proposed: No. 130, page 97, line 24, at end insert
	'or on the Alternative Investment Market of the London Stock Exchange or its equivalent European Union exchanges.'. [Mr. Francois .]
	 The House divided: Ayes 166, Noes 348.

Question accordingly negatived.

Clause 107
	  
	Conditions for tax-exempt business

Amendment made: No. 27, page 98, line 43, at end insert
	'(a) no account shall be taken of the fact that a property may fall to be described as owner-occupied by reason only of the provision by the company of services to an occupant who is in exclusive occupation of the property and is not connected with the company (within the meaning given by section 839 of ICTA),'.  [Ed Balls.]

Schedule 17
	  
	Group Real Estate Investment Trusts: modifications

Amendment made: No. 30, page 351, line 9, at end insert
	'(1A) In section 107(7)(a) a reference to the company shall be treated as a reference to a member of the group.'. [Ed Balls.]

Clause 159
	  
	Recycling of lump sums

Amendment proposed: No. 14, page 135, line 34, at end insert
	'(7) The Treasury may make regulations about the application of subparagraph (2) of this section which will be deemed to take effect from 6th April 2006.'. [Mr. Hoban.]
	 Question put, That the amendment be made:
	 The House divided: Ayes 222, Noes 295.

Question accordingly negatived.

Schedule 23
	  
	Pension schemes etc: miscellaneous

Amendments made: No. 31, in page 462, line 29, at end insert
	 'Short service refund lump sum: protected rights etc.
	26A In paragraph 5(1)(d) of Schedule 29 (requirement that lump sum under a pension scheme must extinguish member's entitlement to benefits under the pension scheme in order to be short service refund lump sum), after scheme insert (except to the extent that it is prohibited from being extinguished by the payment of a lump sum by reason of the operation of provision made by or under any enactment)..'.
	No. 97, in page 470, line 6, at end insert
	'40A In section 256(1) (enhanced lifetime allowance regulations)
	(a) in paragraph (d), after 7(1)(b) insert or 11A(1)(c), and
	(b) in paragraph (e), after 12(1) insert or 15A(1)(b).'. [Dawn Primarolo.]

Schedule 26
	  
	Repeals

Amendments made: No. 102, in page 484, line 34, column 2, at beginning insert
	
		
			  'Sections 43A to 43G.'. 
		
	
	No. 103, in page 485, line 5, at end insert
	
		
			 'Finance Act 2000 (c. 17) Section 110. 
			 Capital Allowances Act 2001 (c. 2) In Schedule 2, paragraphs 11 and 12.'. 
		
	
	No. 104, in page 485, line 6, column 2, at beginning insert
	
		
			  'In section 103(4)(a), the words 43A(1),.'. 
		
	
	No. 105, in page 485, line 10, at end insert
	
		
			 'Income Tax (Trading and Other Income) Act 2005 (c. 5) In Schedule 1, paragraphs 26 to 30.'. 
		
	
	No. 106, in page 485, line 11, column 2, after 'paragraphs' insert '1,'. [Dawn Primarolo.]
	 Order for Third Reading read.

Dawn Primarolo: I beg to move, That the Bill be now read the Third time.
	I should like to take the opportunity to thank all hon. Members who participated in Committee of the whole House and Standing Committee. Our debates have again been detailed, ensuring effective scrutiny.
	The Budget that my right hon. Friend the Chancellor presented to the House in March set out a vision for a strong economy and a fair society, with opportunity and security for all. The Bill delivers measures to enhance productivity, help create a fairer society, protect the environment and safeguard the revenues that are needed to deliver high-quality public services.
	The Bill introduces two new tax regimesthe real estate investment trustsREITsand the film tax, which have been warmly welcomed by stakeholders. The real estate investment trusts, which clauses 103 to 145 introduce, will improve the efficiency of our property markets and allow smaller investors greater access to property returns. Clauses 31 to 53 introduce a new and generous film tax relief, which will provide better targeted and more direct support straight to film production companies.
	The Government believe that, in a modern and fair tax system, we need to keep pace with a changing world. We need a tax system in which everyone pays their fair share of tax. To build a fairer tax system, we must take action against those who seek to avoid paying their fair share or set out to defraud the Exchequer. The Bill therefore takes action against tax avoidance, which distorts markets and adds no value to the UK economy. The vast majority of taxpayers do not engage in avoidance, and it would be inappropriate and unfair if the Government failed to act against it.
	Disclosures have enabled Her Majesty's Revenue and Customs to become aware that a minority of employers are using highly contrived schemes to avoid paying income tax and national insurance contributions on their earnings. In 2004, the Government announced that they would take action against any such complex and contrived avoidance schemes, if necessary with effect from the date of that announcement. That is exactly what the Finance Bill does, and it is right to do so.
	It should also be clear to anyone in this House and outside that paying tax should not be voluntary. Before the Budget it became clear that some wealthy individuals were using trusts as a way to shelter wealth from inheritance tax, and schedule 20 addresses that unfairness, bringing the tax regime for accumulation and maintenance trusts and interest in possession trusts in line with mainstream rules for the taxation of trusts and discretionary trusts.

Theresa Villiers: Will the Paymaster General give way?

Dawn Primarolo: No.
	It is also important that our tax regime remains relevant in a changing world. The Bill changes the tax regime for the North sea oil companies to reflect the world as it is today, while continuing to promote investment in the North sea and to ensure fairness for taxpayers. The North sea is a national resource and it is important that the United Kingdom receives an appropriate share of the economic rent from its exploitation, and of course it is also important in this area and others that the tax system does not provide artificial incentives to indulge in non-commercial tax-driven behaviour.
	Yesterday there was a very full debate on the importance of protecting the environment, a goal that the Government share, and measures in the Bill help to achieve that by introducing further reforms to vehicle excise duty and increasing the climate change levy in line with inflation from 1 April 2007, to encourage energy efficiency in the business sector.
	The Bill introduces important measures that ensure that the United Kingdom has a modern and fair tax system which keeps pace with a changing world, with incentives for individuals to work, save and invest, supporting business and individuals, while ensuring that public money is used appropriately. I commend the Bill to the House.

Theresa Villiers: I shall try to match the Paymaster General for brevity, but I cannot guarantee that I will be quite as quick as she was.
	Although there are a number of aspects of the Finance Bill that we support, we have grave concerns about a number of its provisions, and the Opposition will therefore vote against the Bill this evening. Before turning to the provisionsI assure the House that I am not going to take each one in turnI echo the right hon. Lady's thanks to all the Members who have participated in what has often been a very constructive series of debates. I want also to put on record the debt of gratitude that my Front-Bench colleagues and I owe to many professionals and professional organisations that have given us impartial and very useful advice to aid us in scrutinising the Bill.
	Turning to the matters on which there is a degree of consensus across the House, we welcome the broad thrust of the Government's attempt to prevent the abuse of charitable reliefs. However, we share a number of the concerns of the charities tax reform group, particularly in relation to the paperwork and record-keeping requirements imposed on charities.
	We welcome also the attempt by the Government in clauses 95 to 98 to provide a legal and tax framework to accommodate sharia-compliant finance arrangements of wakala and diminishing musharaka. I acknowledge the valuable work done by the Government on this issue, which is important not only for our international competitiveness in an increasingly important global market in Islamic finance but for tackling financial exclusion in Britain's Muslim community. I take the opportunity to pay tribute to one of the imams in Barnet, Mufti Barkatullah, for his work on this important matter.
	We also welcome, as we have said this afternoon, the Government's framework for real estate investment trusts. We feel that the reform is long overdue, since such structures have been in place in other developed economies with great success for many years. We also feel that more could be done to encourage residential property in REITs, and we continue to believe that REITs quoted on the alternative investment market would be feasible and a sensible extension of the framework provided for in the Bill.
	Although we welcome clause 19, on cracking down on missing trader fraud, we want to know when the Treasury will get the EU derogation that it needs to put the clause into operation. We are grateful for the assurances given on that point by the Paymaster General. I emphasise again the urgency of tackling this problem, which as we have heard again today is estimated to have lost the Exchequer about 1.9 billion in 2004-05. The problem is now so serious that it is undermining the accuracy of our trade figures, and it is high time the Government took effective action to tackle this organised criminal fraud, which is depriving the Exchequer of so much money.
	I move on to more contentious matters. One of the main reasons for opposing the Bill is that we do not believe that it is a green Bill. We do not believe that it implemented a green Budget. The Red Book shows that the proportion of green taxes is falling as a proportion of tax revenue. It is lower than it was in 1997-98. The Chancellor's headline-grabbing scheme on car tax will have a minimal impact. Anyone who delves into the small print will find that schedule 8 abolishes tax incentives for leasing environmentally friendly equipment. We regret that the Government voted down the entirely reasonable demand that the Chancellor report to Parliament on the uptake of crucial microgeneration technology.
	As for the climate change levy, sticking in the words climate change does not mean that the levy works to tackle climate change. It is a tax that does not do what it says on the tin. Yes, some of the climate change agreements that the levy has produced have been useful but the fundamental problem remains that it is a tax on energy and not on carbon. It needs to be converted into a genuine carbon tax that does much more to encourage and promote the uptake of clean renewable energy than it does at present.
	The second key reason for opposing the Bill is that we believe that it will further undermine our competitiveness in an international world economy. The Chartered Institute of Taxation put the problem in measured terms as follows:
	We appreciate that the UK's competitive position depends on a number of factors and that potential investors in the UK will consider the whole business environment and not just the tax system in isolation. Our experience is that the UK is becoming regarded as a more difficult place to do business, with the complexity of the tax system being perceived as a disincentive to invest.
	The institute describes the UK tax system as spinning out of control.
	It appeals for an end to
	excessive tinkering with tax rules.
	The abolition of the zero per cent. rate of corporation tax and other changes to business tax relief are prime examples of chronic instability in our tax regime. Year in and year out, the Chancellor announces initiatives that make a good soundbite in the Budget. He is not in his place today but he turns up for the Budget. Businesses carry out the difficult, time-consuming and expensive task of adapting to yet more changes in the tax system. Just as they have become used to those changes, the Chancellor scraps them and his cycle of continuing revolution continues.
	This pattern of volatility recurs in clauses 31 to 47, in introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts of 2000, 2002 and 2004-05. Yet still the reliefs haemorrhaged a staggering 560 million from the Exchequer in the past financial year. An entire industry has developed around the misuse of these reliefs. The Opposition certainly hope that the Government's latest attempt to focus tax breaks more accurately on people making films will provide better value for money than reliefs have proved to date.
	We are not sorry to see the back of the sections 42 and 48 reliefs. We hope that the Government have at last got it right; otherwise, expect Groundhog Day this time next year with yet more changes to the film tax regime in the Finance Bill 2007.
	The continual cycle of change has produced a huge amount of uncertainty in the film industry and has jeopardised some important projects. For example, the filming of the latest James Bond film has moved to the Czech Republic. Even the Government's most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.
	I move on to a rather less glamorous aspect of the Bill. Schedules 8 to 10 introduce what the Finance and Leasing Association describes as the biggest change to leasing taxation for a generation. A thriving leasing industry is crucial for business investment and productivity, both of which have performed poorly under Labour. We are not convinced that the Government have fully thought through the impact of these eye-wateringly complex new provisions, given their impact on business investment, on indirect investment and on the public sector. These areas face higher leasing costs as a result of the changes.
	We are dismayed at the phenomenal complexity of pension provisions, supposedly adopted with a view to simplification. We believe that the Government's attempts to prevent recycling of lump sums could discourage people from saving for their old age. The provisions are incredibly widely drafted. The Economic Secretary tells us, Don't worry, innocent transactions will be excluded by detailed guidelines. It is not acceptable to draft a hugely expansive statutory provision that catches many entirely innocent taxpayers and then to say, It is OK because we will not tax everyone who falls within the statute. We will only tax the bad guys. This is suspiciously close to taxation by decree. That is why Opposition Members oppose the provisions. We regret that the Government have failed to address the injustices caused by the annuity rule.
	We strongly oppose the Government's hare-brained proposal to bring forward the filing dates for tax returns to September. The Carter report would involve a huge amount of unnecessary hassle for taxpayers and would impose great pressure on their professional advisors, so we urge the Government to reject it.
	The abolition of the home computing initiative is a major blow to the competitiveness of the economy. Thousands of low-income families, many of whom would find it difficult to obtain credit to buy a personal computer on the open market, have benefited from the scheme. The Government's decision to abolish a scheme that it recently relaunched does not help us to embrace the digital age or develop the highly skilled work force that we desperately need to compete with the new global economic giants of China and India. It does not help the Government Departments that were rolling out the scheme when the Chancellor's axe fell; nor will it help working people in Britain to develop a good work-life balance; nor does it help people striving to improve their skills and their lives.
	In conclusion, the Opposition oppose the Bill, because it fails to equip us to compete effectively in the globalised world economy. It heaps further confusion, complication and instability on a tax system that the Chancellor has made one of the most complex in the developed world. It contains no effective measures to tackle climate change, and despite the Chancellor's ignominious retreat on a range of key issues, schedule 20 still imposes punitive new inheritance tax charges on a wide range of ordinary hard-working people whose only wrongdoing is to use a trust to provide responsibly and prudently for their family's future. Those iniquitous new IHT charges were introduced without consultation. They are deeply flawed, which is why the Government have tabled no fewer than 50 amendments to the schedule that brings them into effect. They are retrospective, and they penalise thrift and prudence. They hit the sick, the dying, the mentally ill and the vulnerable, as well as those struggling with the misery of divorce. They have caused needless anxiety to thousands of people across the country, and I urge the House to oppose them and the Bill this evening.

Julia Goldsworthy: We support certain parts of the Bill, but some of the serious concerns that we expressed on Second Reading remain on Third Reading. However, we broadly welcome the proposals on real estate investment trusts, which are a classic example of the way in which consultation can produce workable legislation. The proposals have been welcomed by industry, because the Government took time to consult, so we largely support them. By contrast, the Government did not consult professionals on their inheritance tax treatment of trusts, and the result was poorly drafted proposals that would have affected large numbers of individuals and called into question fundamental assumptions in IHT such as the spouse exemption. Dozens of amendments were tabled to improve the proposals. The spouse exemption has been safeguarded, but it is still not clear how many individuals will be affected by the changes.
	Ministers continue to insist that a minority of a minority will be affected, but they have failed to produce evidence to back that up. The Select Committee on Treasury asked for background information before the Standing Committee considered the issue, but it was not produced. I asked for that information in written parliamentary questions, only to be told that it was not normal procedure to release it. There is a significant public interest in making that information available, as it would allay the fears of many people who are still concerned that they will be affected by the changes, so I hope that Ministers will reconsider their decision and publish the information. Despite the many amendments made in Committee and on Report, uncertainty remains, so I am sure that we will revisit the relevant clauses and schedules in future Finance Bills.
	Other changes that were made without any warning include the withdrawal of the home computer initiative, which is another example of the Government throwing the baby out with the bathwater. Indeed, they abolished the initiative without prior warning or consultation. Instead of tightening the definition of relevant equipment, they have removed the scheme altogether, even though it helped to achieve computer access for many households, including low-income households. Besides affecting those families, the scheme's sudden withdrawal has resulted in businesses losing their core work, and has disrupted Government Departments that were planning further roll-outs when the withdrawal was announced.
	Confidence in any similar schemes that may be announced by the Government has been affected because, ultimately, businesses need to be certain of the stability of the systems that they use. Once again, however, that confidence has been undermined or eroded. One has only to look at the changes to corporation tax to see how further instability and complication have been introduced. Gordon Brown has introduced changes virtually every year, and although we welcome the situation that we are now in, why has it taken the Chancellor such a long and circuitous route to arrive back exactly where he started?
	There have been many measures to tackle fraud and evasion, including missing trader fraud, which we discussed again this afternoon. Although the closure of loopholes in the tax system is welcome, considerable complexity has been added to the tax system by the Bill, and the concern is that it will result in a cat and mouse process, with further complication required every year to overcome further loopholes that have been created by further more complex legislation.
	Fundamentally, we see the significance of the Bill in what it does not do, mainly in terms of green action. Limited changes are present in the Bill. We welcome the revalorisation of fuel duty and the climate change levy, but at best these measures will only halt the decline that we have seen in green taxes as a proportion of the total tax take. They will not increase the proportion that it represents. We are disappointed that the Government did not adopt the new clause tabled by the hon. Member for Nottingham, South (Alan Simpson), as it would have helped make strategy, which is clearly lacking from the Government and the Treasury, very clear. I find it astounding that the Paymaster General can refer to the constructive debate that took place on the new clause yesterday, but refuse to support it.
	What we see in the Bill is tokenism of the worst kind, which has been announced with fanfare but will do next to nothing to change behaviour. The clearest example is the introduction of a new band of vehicle excise duty for the most polluting cars, which introduces a differential in value to the next band down equivalent to less than a tank of petrol for the most polluting cars. I was glad to hear the comments of the hon. Member for Chipping Barnet (Mrs. Villiers) about those proposals in her remarks on Third Reading, but we saw no proposals from the Conservatives for green measures. We have seen tokenism from those on the Conservative Benches, too.
	To conclude, what we would like to have seen but in large part did not see is action to follow the rhetoric that is so often expressed by the Government on green issues and on many other important matters. We have not seen any significant simplification of our tax regime. We have not seen any changes to make the tax regime fairer. Inequalities are still growing, and the richest 20 per cent. are still paying less in tax as a proportion of their income than the poorest. We have also not seen any greater devolution of spending power in the Bill. The United Kingdom remains one of the most centralised states in Europe.
	I would like to associate myself and my colleagues with the thanks expressed by the Paymaster General to all Members of the House. The Clerks have been very helpful in their assistance with amendments, as have many organisations, such as the Law Society, the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, PricewaterhouseCoopers and KPMG, among many others.
	There have been some welcome aspects to the Bill, but we are disappointed by the lack of action on green issues and we therefore cannot support the Bill on Third Reading. There are still significant problems relating to trusts, inheritance tax and other matters about which I have expressed my concerns. I thank you, Mr. Speaker, for your patience in dealing with all of us.

George Young: It is 10 years since I last served on the Standing Committee on the Finance Bill, and it will be 10 years before I do that again. I mean no disrespect to my colleagues who served on the Standing Committee, or, indeed, to Ministers. On the contrary, it is a reflection of the increased length and complexity of the Finance Bill that only those with the most acute understanding of the country's tax system can play a useful role on the Standing Committee. It is rather like a soap opera. If one misses a few episodes, it is very difficult to catch up with the plot.
	I shall make three comments. One must be ever alert to globalisation. There may be very good reasons for some of the tax changes that we make in this country, but one must be aware of the impact that they may have on the highly mobile capital industry, which can locate its investments anywhere.
	Secondly, we must do all we can to remove the driver for complexity in the tax system, and we must do even more to get more people outwith the warm embrace of the tax system. We seem to be making slow progress towards the simpler tax system that we all want.
	Finally, we were particularly fortunate to have the hon. Member for Wolverhampton, South-West (Rob Marris) in the Standing Committee, because he was able to give us the ministerial rebuttal of our amendments minutes before the Minister. I hope that it will not be too long before his energy and talents are recognised and rewarded.

Stewart Hosie: Some of the measures in the Finance Bill are welcome, as was the Government's willingness on some occasions to listen and make changes. Of those changes, the inclusion of those with parental responsibilities for vulnerable children in the trust regime was particularly helpful, although a number of other helpful suggestions made by hon. Members on both sides of the House were not taken on board in such a positive manner.
	The Bill provided an excellent opportunity to debate the supplementary charge in the North sea, which we believe is a damaging change to the regime. Likewise, the Government's change to the blended oil regime was subject to detailed debate and correspondence.
	We had a useful debate on REITs, which we welcome. Although we believe that the regime, with its stock exchange listing element, is still rigid, we welcome the commitment to review the matter on an ongoing basis, which we too will do.
	We also had a useful debate on the high cost of fuel. However, it was disappointing that the Government still failed to recognise the requirement to introduce a fuel tax regulator both to provide specific assistance for the road haulage industry and to help those in sparsely populated rural areas who need a car.
	The Finance Bill was the result of a Budget that one commentator described as heavy with light measures. Chief among those light measures was the abolition of the home computer initiative. The Paymaster General said on a number of occasions that alternatives would be put in place, and today she discussed proposals to provide computers in community centres and by community education departments. However, if someone on a low wage wants to educate themselves and to improve their IT skills, they need a computer in the home. Following the abolition of the home computer initiative, I suspect that a similar initiative will have to be reintroduced in the future.
	The Bill is a missed opportunity. Although there was talk about additional assistance for research and development, expenditure on R and D in the UK is half that of our major European competitors, and the rate in Scotland is about half that of the UK. The position is deplorable, and the Bill includes very little to improve the situation.
	Our key difficulty with the Finance Bill is the changes on the North sea. The Bill takes billions more out, and makes unnecessary changes to the supplementary charge and the blended regime system, yet it offers nothing in return for new exploration and for the development and extraction of heavy oil in the central North sea, the fields west of Shetland and the fields in the very deep water west of Scotland. For that reason, if no other, we will oppose Third Reading tonight.

David Gauke: Unlike my right hon. Friend the Member for North-West Hampshire (Sir George Young), this was my first experience of the Finance Bill, and I want to make one or two observations.  [ Interruption. ] I know that hon. Members are keen to watch France play Portugal.
	As we have progressed through the Bill, I have been surprised by how frequently the European Union has cropped up. On Second Reading I addressed the question of why we are substantially changing group relief as a consequence of a European Court of Justice judgment. That is usually an important issue, yet the UK Government have little scope for manoeuvre given the existing constitutional position. Several times during the Bill's passagefor example, when we attempted to tackle missing trader intra-community fraud, leasing rules or film taxationwe found that the motivation for changing the law was that it was required by an ECJ judgment or potential judgment.
	I echo the remarks made by my right hon. Friend the Member for North-West Hampshire as regards the sheer complexity of the tax system and, as a consequence, the need for outside expert advice.  [ Interruption. ] The Economic Secretary anticipates my point. An error or oversight by Treasury officials was spotted by an eagle-eyed professional adviser[Hon. Members: Name her!] Her name is Mrs. Rachel Gauke, a lawyer at Travis Smith. It would be fair to say that other errors have been spotted by professional advisers who are not necessarily as eagle-eyed as my wife.
	The Government got themselves in a bit of a muddle on their initial drafting with regard to trusts. They attempted to tackle it without consultation, so that professional advisers were unable to provide their input, although they did when the draft Bill was published. To be fair, I must add that the Government have made a substantial number of amendments in that area, for which I am grateful. We now have a better Bill than we did initiallybetter, but not good enough. The complexity in the tax system remains considerable. Speaking as a non-tax lawyer, it is always difficult to grasp even the relatively small elements that we cover in the course of a Finance Bill.
	As my right hon. Friend the Member for North-West Hampshire said, we live in a globalised world where capital flows from one jurisdiction to another, and we have to be careful to ensure that we have a fair system that not only deals with evasion but is manageable for individuals and for businesses. Conservative Members are deeply concerned that that balance is increasingly being got wrong, which is of major concern for the long-term competitiveness of the British economy.

Question put, That the Bill be now read the Third time:
	 The House divided: Ayes 287, Noes 203.

Question accordingly agreed to.
	 Bill read the Third time, and passed.

COMPANY LAW REFORM BILL [ LORDS] (PROGRAMME) (NO. 2)

Motion made, and Question put forthwith, pursuant to Standing Order No. 83A(6) (Programme motions),
	That the Order of 6th June 2006 (Company Law Reform Bill [ Lords] (Programme))
	shall be varied by the substitution for '13th July' of '20th July'. [Mr. Alan Campbell.]
	 Question agreed to.

Mr. Deputy Speaker: With the leave of the House, I shall put motions 4, 5 and 6 together.

DELEGATED LEGISLATION

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

Terms and Conditions of Employment

That the draft National Minimum Wage Regulations 1999 (Amendment) Regulations 2006, which were laid before this House on 5th June, be approved.

Security Industry

That the draft Private Security Industry Act 2001 (Amendments to Schedule 2) Order 2006, which was laid before this House on 14th June, be approved.

Health Care and Associated Professions

That the draft Medical Act 1983 (Amendment) and Miscellaneous Amendments Order 2006, which was laid before this House on 19th June, be approved.  [Mr. Alan Campbell.]
	 Question agreed to.

Ambulances (County Durham)

Motion made, and Question proposed, That this House do now adjourn. [Mr. Alan Campbell.]

Mr. Deputy Speaker: Order. The next business is the Adjournment debate, which is very important. Will hon. Members please leave quickly and quietly so that we can get on with that important business?

Helen Goodman: Thank you, Mr. Deputy Speaker.
	I am grateful for the opportunity to convey to the Minister the concerns of my constituents about the proposed reorganisation of the ambulance service in Teesdale by the North East ambulance service. Let me begin by describing, very briefly, the area affected.
	Teesdale is in the western part of my constituency, and measures 325 square miles. The valley consisting of several villages west of Barnard Castle has some 10,000 inhabitants, and 29 per cent. of the population are over the age of 65twice the national average. The region is an area of outstanding natural beauty and attracts many tourists and other visitors, who unfortunately sometimes come to grief on the 200 miles of B and C roads. There are also four large trunk roadsthe A66, the A67, the A68 and the A688where serious accidents sometimes occur.
	At present, there are two ambulance stations in the area, one in Middleton in Teesdale and one in Barnard Castle, with a total of seven staff working 12-hour shifts and then being on stand-by for 12 hours at night. They have to live within 3 miles of the station so that if they receive urgent calls, they can arrive in time. Under the current rules governing response times, 75 per cent. of life-threatening accidentsaccidents in category Amust be reached within eight minutes, while 95 per cent. of category B accidents, involving serious injury, must be reached within 19 minutes. Category C accidents can involve alternative kinds of treatment, but category D requires GP urgent calls, and the GP will say what the time should be. Those rules were set by the NHS, and I am sure that the Minister is fully aware of them.
	According to figures from Durham Dales primary care trust, more than 40 night-time emergency calls were received in Teesdale in 2005the most recent year for which statistics are availableof which 95 per cent. fell into categories A or B, or were urgent GP calls. As local GPs have confirmed, that means that in most cases those affected needed hospital treatment. There were 7.5 per cent. more calls than in the previous year. Incidentally, that picture is very different from the national one, in which 70 per cent. of 999 ambulance calls do not fall into the very urgent categories.
	As the Durham Dales PCT says, NEAS has consistently met national response times to save patients' lives, and that has been recognised by the award of a three-star rating for the past four years. That is why people locally find it hard to understand why changes need to be made. In two respects, the situation in Teesdale is different from that in the other rural areas in the north-east, such as Weardale and Northumberland. First, Teesdale is more populous. One of the complaints local people have made is that the level of calls in Teesdale is higher than in Amble or Belford, which are not being reorganised in this way. Secondly, it has not been difficult to recruit staff, which was a problem in Weardale. I am concerned that NEAS, in its enthusiasm for efficient administration, has treated all the rural areas as homogenous, when they are of course quite different.
	The original proposal from NEAS was to close the ambulance stations in Middleton in Teesdale and in Barnard Castle and replace them with single paramedics. That proposal was totally unacceptable, as the nearest hospitals are 30 to 40 minutes away in Bishop Auckland and Darlington, so the time taken to reach hospital would have been extended by 40 to 50 minutes, as the paramedics would first have had to attend and make an assessment. Moreover, the idea would not have met national guidelines. It provoked local people, including health professionals, those working in the service and the patient and public involvement forum. I have received a petition signed by 5,000 people, 3,620 of whom live in Teesdalea third of the whole community affected. The petition makes it clear that they want a double-crewed paramedic ambulance 24 hours a day, seven days a week.
	Following much work and activism by local people, NEAS has modified its proposal, but I am afraid that it is still putting forward a solution that appears at first sight to be worse than the current one. I shall therefore ask my hon. Friend for some clarifications and assurances. NEAS now proposes to close the Middleton in Teesdale station only. No reason has been given for that. My hon. Friend needs to understand that Middleton in Teesdale is some 12 miles from Barnard Castle. It takes half an hour to get to Middleton in Teesdale, and that time will be added to all journeys to the upper dale, including those to large road accidents on the A roads in the Pennines. Furthermore, it would probably be slower than having people on stand-by in Middleton in Teesdale. Would it be possible to retain the Middleton in Teesdale station? If not, why not?
	As I have explained, the original proposal was that a paramedic would arrive on a motorbike and not be able to take a person to hospital straight away. Will my hon. Friend the Minister confirm whether, under the revised proposal, the paramedic will always arrive with an ambulance, which can take the person to hospital immediately, if necessary?
	A third issue that staff have raised with me is the medical qualifications of the emergency care assistants who drive the ambulance, which will be less than those of existing ambulance staff. That does not seem to be very safe, especially for complex problems or where more than one person has been injured, say in a car accident. Surely that marks a worsening of the service and patient care. My understanding is that no job description has been agreed with the trade union, Unison, for the new care assistants. Is Teesdale being used as a guinea pig to test a new practice, in the hope that it can be rolled out nationally if the ambulance service thinks that it works well?
	The latest document from the Durham Dales PCT makes much of the overall increase in staff numbers in the service. Incidentally, I would be interested to know why the new arrangements will leave Weardale and Teesdale with the same number of staff, when Teesdale has three times as many calls as Weardale. More fundamentally, the paper from Durham Dales PCT states that
	the Community Paramedics will take on a number of other roles in general practice and the wider community.
	That sounds like an ambulance driver cum health visitor cum district nurse role, but it would be helpful to know what proportion of time will be spent in each role. How will that fit in with other work? What would happen, for example, if a community paramedic was helping an old person with medication and an emergency call came in?
	I have some questions about the funding implications in respect of the extra paramedics. Will the PCT, which ultimately pays for the service, have to cut other services to finance the proposals? Has extra money gone into the budget for this year and successive years to pay the additional staff costs?
	My hon. Friend the Minister should be aware of the wider context of the proposal. First, the air ambulance service in the north of England is continuing to struggle financially. The NEAS says that it does not rely on the service, although it is invaluable, so can my hon. Friend tell the House how many times the service has been used in the area over the past two years? As I am sure she is aware, the air ambulance service relies entirely on voluntary donationsunlike Scotland, where it is state fundedand recently one of the helicopters was grounded due to shortage of funds.
	Secondly, there is an interrelationship between the proposed reorganisation and the ending of the GP out-of-hours service in Teesdale, which is another local concern. Soon, there will be no GP service in the evenings or from early evening on Friday until Monday morning, which is 60 hours in total. As the nearest hospital is in Bishop Auckland, 20 miles away, it is highly likely that the ending of that service, coupled with the NEAS reorganisation, will further increase the number of ambulance calls. Has that possibility been taken into account in the proposals?
	The most important thing is that the ambulance service retains the confidence of local people. Chapter 7 of the recent health White Paper, Our health, our care, our say, is headed Ensuring our reforms put people in control and states:
	People's voices need to be heard and they have to count. This includes everyone, including groups such as children and young people who do not always have the choice to participate...Commissioning must be informed by people's voices and be responsive. Local people must play a role in the planning, design and delivery of services.
	The people of Teesdale have spoken. I hope that they will be heard.

Rosie Winterton: I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing this debate and on expressing so eloquently her concerns and those of her constituents. I take this opportunity to pay tribute to all the NHS staff in County Durham and the Tees valley area who have made such great progress in improving the NHS. I am sure that my hon. Friend will join me in praising the work of NHS staff in helping to make some of the improvements in her local area. Some of the funding increases for PCTs in her area have contributed to more doctors and nurses and to cuts in waiting times in recent years. We all welcome that.
	Real progress has been made in the health service in my hon. Friend's area, but alongside record levels of investment, we must recognise that reform is certainly needed to deliver the NHS fit for purpose in the 21st century that we all want. It is vital that the local NHS can consult local people, and I shall set out some of the structures for doing that later in my speech. As my hon. Friend rightly said, it is important that the views of local people are taken into account. That is why many NHS organisations are looking, with local stakeholders, at changes in the organisation of their services. I am sure that my hon. Friend will agree that, as we see different roles emerge for staff and changes in technology, there is more that we can do to meet patients' needs, and that it is important that we take those steps.
	My hon. Friend asked a number of questions about the background to why changes are being made to the rural ambulance service in County Durham. In June 2005, the Department published the results of our national review of ambulance servicescarried out in conjunction with staffwhich examined some of the associated clinical issues and the changes that we wanted to make to services. That review set out how we can transform such services, moving them away from a focus primarily on resuscitation, trauma and acute care, and toward becoming a mobile health resource for the whole NHS that takes health care to patients in the community, rather than always transporting them to emergency care. We certainly support the review and we are considering how we can implement the recommendations.
	As my hon. Friend said, her constituency is served by the North East Ambulance Service NHS Trust, which is made up of dedicated and hard-working staff. As a result of their dedication, increased investment and wide-ranging reform of working practices over the past six years, ambulance performance has improved, as my hon. Friend mentioned. The local ambulance service is now reaching more patients with life-threatening conditions faster than ever before. In 2004-05, the service responded to 77.4 per cent. of category A calls within eight minutes.
	However, there is always scope for further improvement, and Durham Dales primary care trust, which commissions ambulance services in the area, has launched a 12-week public consultation exercise on proposals to modernise them. The trust's vision is to provide an equitable emergency care service across the whole area. As my hon. Friend said, the PCT is currently serviced by three standby stations. Staff who have been on duty during the day at those stations are also expected to be available to respond to emergency calls and GP-urgent calls from their own homes at night. So at the moment, the crew are alerted by ambulance control at their homes, they get dressed, travel to the station, pick up the ambulance and respond to the incident. Inevitably, that results in delays, and response times are not always being achieved, due to that delayed action at night. Unfortunately, that can of course mean that patients do not always get the best service that we want to see, and the long hours that crews are required to work are detrimental to their health and well-being, as well as to the overall provision of service.
	The new proposals represent 200,000 in additional investment in ambulance services, which is very important. My hon. Friend asked whether that will be to the detriment of other services, but we should consider the knock-on effects of a reduction in emergency admissions as a result of introducing a new service. It is important to provide that additional investment, and I hope that that gives my hon. Friend some reassurance.
	Standby working practices will be replaced by 24-hours-a-day, seven-days-a-week cover for the communities in Durham Dales, which will ensure proper round-the-clock cover at all times. As my hon. Friend said, the current staff of 11 will be increased to 22 and will comprise 12 community paramedics and 10 emergency care assistants.
	Each ambulance will be staffed by a two-person crew. There will be a highly qualified community paramedic who will be trained to respond quickly, assess and treat patients, and, if necessary, transport them to hospital. An emergency care assistant will be trained to the equivalent level of first aid responders and will also be qualified to drive an ambulance under blue light conditions. That was changed during the pre-consultation period to ensure that an ambulance with a two-person crew would be available at all call-outs. I hope that that addresses my hon. Friend's point.
	That is very much in keeping with the Department's wish to transform the service nationally. That is some of the background. Community paramedics will differ from traditional ambulance crews in that they will work more closely with other health care professionals. For example, working alongside GPs, they will be trained to a higher skill level in areas that will best meet the clinical needs of the community that they are serving. For example, they will be able to treat patients in the community or in a surgery, carry out urgent home visits on behalf of a GP, and assist nurses with tasks such as taking blood, immunisations and monitoring heart rhythm. As a result of those changes, the local health service will be able to make sure that it is making the best use of resources, providing more convenient services from the patient's point of view, and, of course, developing team working.
	Coming back to the wider benefits, more patients being treated in the community will mean fewer unnecessary accident and emergency attendances, which is important when we think about a lot of our constituents, who might be taken to an accident and emergency department because they were not treated at home or in a GP's surgery when they could have been. Once in hospital, it is much more difficult to get out. If we can prevent those unnecessary admissions, it is better for patients and better for the local NHS. However, responding to 999 calls will always be the priority. As is the case now, should there be a serious incident, the ambulance service will always deploy additional ambulances.
	Two double-crew community paramedic ambulances will cover the Teesdale and Weardale areas. The two new bases in the Durham Dales will be for equipment storage and routine vehicle maintenance, replacing the three current stations. The two new ambulances bases would be in Stanhope to cover Weardale, to improve response times to emergency calls, and in Barnard Castle to serve the Teesdale area.
	Ambulance cover in my hon. Friend's area is provided across three stations, as she said: St. John's Chapel, Middleton in Teesdale and Barnard Castle. I am aware of her concerns that these proposals would mean the closure of Middleton station, but it is important to note that Barnard Castle and Middleton in Teesdale currently operate as a single unit. As such, ambulance cover in Teesdale is based in Middleton for only one week in three. For the other two weeks, ambulance cover is provided from Barnard Castle.
	Establishing the community paramedic base in Barnard Castle will formalise that shared rota arrangement. It means that there will be a greater number of staff and a higher quality of service. Barnard Castle has been indicated as the proposed site because its population is 5,326, which is several times larger than that of Middleton in Teesdale. The analysis of calls shows that there are twice as many calls from Barnard Castle as from Middleton. Barnard Castle is centrally located. It is important to stress that no final decisions have been taken and that none will be made until after the public consultation exercise. I will run through exactly how that is taking place a little later.
	The existing system is slightly outdated for a modern ambulance service. Such a service needs to be responsive to the needs of patients and to improve the working lives of staff. We must consider whether the kind of stand-by arrangement about which we have talked really offers an acceptable work-life balance for ambulance staff. I understand that some staff in the stand-by stations approached the ambulance service to request a change to working practices. In addition, as my hon. Friend said, it is effectively a condition of employment at present that crews must live no more than 10 minutes away from the ambulance station. That can place restrictions on the recruitment pool that is available, and although that might not be a problem at the moment, it is important to think about the future. I understand that the PCT is keen to talk to local schools about recruitment to, and career prospects in, the ambulance service so that people continue to be encouraged to come forward.
	I hope that I can assure my hon. Friend that the review is about achieving better response times. It shows a desire to do more for local communities and to work in partnership with primary care. It is not a cost-saving exercise, and there will be 200,000 of additional investment. My hon. Friend asked where some of the changes came from. The community paramedic concept certainly arose from to a desire to provide fast response times to life-threatening emergencies in rural areas. She asked about the national roll-out, and such a system has been introduced successfully in several other rural ambulance services. As I said, staff numbers will be increased from 11 to 22.
	My hon. Friend asked about the air ambulance service. As she will know, it is funded by a charity, and it is not possible to give completely accurate figures. However, I believe that since the service commenced, it has attended about 8,000 incidents.
	My hon. Friend talked about the importance of public consultation and the local voice being heard. It is important to remember that the NHS has a legal responsibility to promote public involvement and consultation under section 11 of the Health and Social Care Act 2001. I know that an extensive public engagement process took place from July to October 2005, which included public and council meetings at which patients and the public were given the opportunity to comment. Given what my hon. Friend said about the petition, people certainly seem to know about the proposals. The PCT and the ambulance service examined closely the views that had been expressed when it considered the proposal to replace the stand-by working practice with the new way of working. As I said, several changes were made to the proposals at the pre-consultation stage. For example, there will be crews of two persons, rather than one.
	The public consultation that was launched last week will run until 18 September. When the consultation period has closed, the feedback will be considered by Durham Dales PCT, which will take into account the results of that consultation before making its final decision. I would really like to assure my hon. Friend. While she has obviously reflected some of the local concerns, it is important to remember that the consultation is guided by the attempt to improve services for patients while also seeking to improve the working lives of staff. It is important that the extra investment is accompanied by the sort of modernisation that we have talked about.
	At the end of the day, what is important is saving people's lives. If we can secure a system that achieves that while at the same time encouraging people to join the ambulance service and to feel that they have a good career structure within it, that is the way to proceed. I know that my hon. Friend has engaged with the local NHS on the way forward and I encourage her to continue to do so. I know that she will reflect her constituents' views during the consultation period and I hope that, in the end, we arrive at a system that improves patient services as well as the working lives of staff.
	 Question put and agreed to.
	 Adjourned accordingly at one minute past Eight o'clock.

Deferred Divisions

Northern ireland

That the draft Education (Northern Ireland) Order 2006, which was laid before this House on 12 June, be approved.
	 The House divided: Ayes 303, Noes 163.

Question accordingly agreed to.

adjournment (summer)

That this House, at its rising on Tuesday 25 July, do adjourn till Monday 9 October 2006.
	 The House divided: Ayes 409, Noes 53.

Question accordingly agreed to.